Eurozone agrees Greece bailout

Christine LagardeEurozone governments have finally come to the rescue of Greece, approving a second massive bailout after months of wrangling and a last round of more than 12 hours of talks in Brussels.

Haggling over figures, financial targets and Greek government belt-tightening pledges went on through the night in a last-ditch attempt to rally markets and put crisis-hit Athens back on the path to economic recovery.
But the deal is based on long-range forecasts of Greek's best-case-scenario debt reduction chances over the next eight years, with some pundits instantly dismissing the deal as undeliverable.

In return for the latest 130 billion euro (£110 billion) bailout and a private creditor debt write-off worth about another 100 billion euro (£84 billion), the Greek government is pledged to implement fully a severe austerity package of pay, pension and job cuts, as well as finding savings of 325 million euro (£270 million) in this year's national budget.

The deal nearly came unstuck over a requirement on Athens to get the Greek projected debt level down to around 120% of national wealth by 2020. Extra hours of financial juggling brought eurozone negotiators close - at least on paper - by massaging the figures to deliver a theoretical 121% GDP level by 2020. Greece had only offered 129%, which was rejected as inadequate, although nothing like as bad as the current unsustainable 160% of GDP Greece is grappling with.

Pundits predicted short-term rallying of markets followed by a fall-back when the continuing massive scale of the debt mountain Greece has to climb becomes clear. The Greek economy received a 110 billion euro (£91 billion) bailout from the EU and International Monetary Fund (IMF) in 2010 but it was not enough to lift Greece out of crisis.

Ahead of the overnight talks some critics were warning against "throwing good money after bad", but the price of letting Greece default and be forced out of the euro currency was seen as a worse option. Instead the talks concentrated on tying Greece as tightly as possible to austerity measures which will chip away at its debt and deficit levels.

A deal was desperately needed to give Greece enough funding to meet its next debt repayment of 14.5 billion euro (£12 billion), due on March 20.

But beleaguered Greek prime minister Lucas Papademos has confronted violent street protests for months as he has tried to impose the deep public sector cuts demanded by the EU and IMF in return for another enormous bailout. And his troubles are far from over: Greece has been in recession for five consecutive years and the latest deal cannot guarantee much more than temporary relief from the crisis, unless the cutbacks work.

To ensure they do work, Germany, the Netherlands, Austria and Finland demanded another condition from Greece - the establishment of a permanent office in Athens made up of representatives from the EU, IMF and European Central Bank (ECB) to oversee Greek tax and spend policies. The IMF already has a base in Greece to monitor Greek finances and EU and ECB officials have been commuting between Brussels and Athens for months checking Greek Treasury books as bailout terms were bartered.
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