The euro zone agreed on Thursday to provide nearly €50-billion ($64-billion U.S.) in long-delayed aid to Athens, prompting its Prime Minister Antonis Samaras to declare an end to talk of a Greek exit from the single currency.
The deal averts a catastrophic default and secures Greece’s survival in the euro zone after months of doubt and political turmoil. Athens had repeatedly missed fiscal targets agreed with the EU and the International Monetary Fund, and stalled structural economic reforms.
“We are convinced that the program is back on a sound track,” Jean-Claude Juncker, chairman of the 17-nation euro area’s finance ministers told a news conference after they met in Brussels ahead of an EU summit later in the day.
“Money will be flowing to Greece as early next week.”
Separately, Mr. Juncker said the Eurogroup expected to receive a report on Cyprus’s banks’ needs by mid-January in order to take a decision on a potential €17.5-billion bailout for the east Mediterranean island, which has been badly hit by fallout from Greece’s debt crisis.
The ministers agreed to disburse a total of €49.1-billion in loans, with €34.3-billion of that flowing to Greece immediately and the rest to follow in stages by the end of March once Athens meets a series of reform benchmarks.
“We’ve been through quite an odyssey since the spring,” EU Economic and Monetary Affairs Commissioner Olli Rehn told a joint news conference.
“At that time in spring a highly unpredictable political situation had many observers convinced that the game was up for Greece in the euro area. As we approach the end of this turbulent year, those Cassandras have been proven wrong.”
Many economists and pundits were forecasting earlier in 2012 that Athens would be forced to leave the single currency in what became known as “Grexit”.
Citigroup chief economist Willem Buiter, who coined the term, had put the likelihood of a Greek exit within 18 months at 90 per cent earlier this year. But he has since reduced that to 60 per cent, arguing that Greece could fail the next donors’ review in March or see its fragile pro-bailout coalition crumble.
Greek Prime Minister Antonis Samaras said Thursday’s decision showed that European solidarity was working and his country would stay in the single currency.
“Grexit is dead. Greece is back on its feet. The sacrifices of the Greek people have not been in vain,” Mr. Samaras said on arrival for talks with other centre-right leaders in Brussels.
Agreement to release the funds hinged on the success of a debt buyback launched by Greece last week, which will enable Athens to retire nearly €20-billion in bonds repurchased at a third of their face value from private investors.
Mr. Juncker said he was not sure additional measures would be needed to reach an agreed goal to bring Greece’s debt down to 124 per cent of gross domestic product (GDP) by 2020, but the bloc stood ready to take new steps if necessary.
The ministers’ promised to consider additional debt relief if needed provided Greece achieves a primary budget balance in 2013 before debt service payments.
IMF Managing Director Christine Lagarde, who took part in the euro zone meeting by conference call from Latin America, said she would recommend to the Fund’s board in January that it continue to support the Greek program.
The debt buyback and the pledge of additional debt relief would ensure that Greece’s debt will fall to 124 per cent of gross domestic product by 2020, and to substantially below 110 per cent of GDP in 2022, she said in a statement.
Continued IMF involvement is vital for several EU creditor nations, including Germany, the bloc’s biggest paymaster.
Of the immediate aid, some €16-billion will go towards recapitalization and resolution of Greece’s teetering banks, €11.3-billion to finance the debt buyback and €7-billion for budget financing.
A further €7.2-billion will flow next month to buttress Greek banks and the remaining €7.6 billion will be paid in monthly instalments when the conditions are met.
While the government voiced relief at the long-awaited Brussels decision, anti-bailout radicals and ordinary Greeks belittled or dismissed it.
Hard left opposition leader Alexis Tsipras said on visiting a memorial to the biggest Nazi German massacre during the Second World War occupation of Greece, at Kalavryta, that other countries had a moral liability for the country’s debts.
“Past governments have left us with an onerous debt that’s bedevilling us and we’re looking for a way out of it. Our people are not to blame. Other governments and other people too must repay that debt,” Mr. Tsipras told reporters.
In Athens, 79-year-old Thanasis Golkas, who supports himself and his daughter’s family on a €400 monthly pension, said: “The money is going straight to the banks, not our pockets so what is there to be happy about?”
Small business owner Konstantinos Papasotiriou said the country’s politicians needed to put an end to the debt problems but he doubted they were capable of it.
“It’s definitely good that we got the money but this is only a temporary solution and we can’t keep on going on like this, from dose to dose,” he said.