BRUSSELS—Eurozone leaders said early Monday that they would give Greece another three-year bailout involving some €80 billion ($89 billion) in rescue loans, provided the government of Prime Minister Alexis Tsipras manages to implement a round of punishing austerity measures in the coming days.
“EuroSummit has unanimously reached agreement” Donald Tusk, who presided over the talks with leaders, said in a tweet. “All ready to go for ESM [European Stability Mechanism] program for Greece with serious reforms & financial support.”
European stocks rallied early Monday on the news. In early trade, the Stoxx Europe 600 rose 1.2%, building on Friday’s hefty gains. Germany’s DAX rose 1.3%, France’s CAC-40 added 1.5% and London’s FTSE 100 rose 0.6%. The euro hit an intraday high of $1.1197 against the dollar before falling 0.4% on the day.
The tentative rescue deal—hammered out after 22 hours of, at times acrimonious, negotiations between the currency union’s leaders and finance ministers—is likely to require the Greek left-wing government’s near-total surrender to its creditors’ demands.
By Wednesday, Athens’s parliament has to pass pension overhauls and sales-tax increases that voters overwhelmingly rejected in a referendum just one week ago. Greece now has to implement European Union rules that make it easier to wind down broken banks, including by sharing the cost with investors and creditors.
“Trust needs to be restored,” said German Chancellor Angela Merkel at a news conference.
“Europe has decided on a road map,” Latvian Prime Minister Taavi Roivas said in a tweet. “Now everything depends on implementation.”
In a concession to Greece, eurozone governments will consider measures to make Greece’s debt more manageable, for instance by giving it more time to repay rescue loans.
But a detailed bailout program, that will have to be negotiated after the first overhauls and cuts have been implemented, will contain measures that go far beyond the kind of oversight and external control other governments under eurozone bailouts have endured.
The most divisive step demanded by Greece’s creditors is the creation of a fund that would hold some €50 billion ($55.74 billion) in state-owned assets slated to be privatized or wound down in the coming years. The fund will be under European supervision, Ms. Merkel said.
Most of the money raised will go to pay off Greece’s debt and help recapitalize its broken banks, while €12.5 billion can be used for investment, said Ms. Merkel
“The advantages outweigh the disadvantages,” she said about the deal, while warning that Greece’s path back to growth will be long and arduous.
Despite these big concessions by Mr. Tsipras, Greece’s future in Europe’s currency union still hangs in the balance.
Passing the tough new bailout measures through Greece’s parliament could split Syriza and its right-wing coalition partner, the Independent Greeks, which in turn could trigger fresh elections. There wasn’t an answer on when the country’s banks—closed for most business for the past two weeks—will reopen or how Greece will make a €4.2 billion payment to the European Central Bank on July 20.
The eurozone’s finance ministers will discuss how to come up with a mechanism to meet Greece’s short-term financial needs “as a matter of urgency,” Mr. Tusk said at a news conference after the summit.
A statement prepared by finance ministers earlier in the day foresaw Greece’s financing needs rising to as much €86 billion, up from the €74 billion estimated on Saturday by the institutions representing Greece’s creditors. Recapitalizing the country’s broken banks is expected to cost between €10 billion and €25 billion.
The International Monetary Fund should continue to be involved in bailing out the country, said French President François Hollande, whose government has taken on a strong role in backing Greece in recent months.
In a concession to Greece, eurozone governments will discuss ways to make the country’s debt load more manageable later this year. Such measures can include giving Greece more time to repay rescue loans, Ms. Merkel said. They won’t include a cut to the nominal value of rescue loans, she said.
As part of the deal, Greece’s administration will be modernized and de-politized, Ms. Merkel said, adding that the Athens government and international institutions will hold first talks on this matter on July 20.