ATHENS — After months in which Greece teetered on the verge of bankruptcy, European officials agreed Tuesday to give the country a second massive bailout in exchange for harsh austerity measures, as grim new estimates about the country’s economy pushed off a resolution until what some officials called the last possible day to reach one.
The decision buys time for the Mediterranean country to try to fix its staggering problems, and gives assurances to the world that a Greek default — and its possibly disastrous ripple effects — will be forestalled, at least for now. If Greece had been cut loose, it would have defaulted in late March, and doubts about the viability of larger countries such as Spain and Italy might have grown.
After more than 12 hours of talks, the countries that use the euro reached an agreement early Tuesday to hand Greece $170 billion in additional bailout loans to save it from a potentially disastrous default next month. (Feb. 21)
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Under the terms of the deal, private bondholders will take a larger loss than had previously been planned in an attempt to get Greece’s debt to what European officials consider a sustainable level by 2020. The officials also agreed to reduce the interest they charge Greece for the long-term loans.
“We have reached a far-reaching agreement on Greece’s new program and private-sector involvement that will lead to a very significant debt reduction for Greece,” Luxembourg Prime Minister Jean-Claude Juncker, who heads the bloc of 17 countries that use the euro, told reporters in Brussels after a 14-hour negotiation. He called the amount of aid “unprecedented.”
But a recent European assessment about Greece’s finances left questions about whether the country would truly be able to live up to the stringent demands to which it has agreed, or whether it would default eventually even with a second bailout. Reflecting that uncertainty, as well as concerns over the hurdles Greece must clear before it secures the aid, European markets were uniformly down in midday trading on Tuesday. Germany’s DAX was 0.82 percent lower; Britain’s FTSE 100 fell 0.42 percent, and the euro was flat against the dollar.
Greek officials said Tuesday that the deal would help put their country back on a sustainable track.
“We now have the ability to progress with stability, to limit uncertainty and to increase trust in the Greek economy in order to create better conditions,” Greek Prime Minister Lucas Papademos was quoted as saying in the Kathimerini newspaper.
Under the plans negotiated between the Greek government and European leaders, officials said Tuesday, Greece will receive a $172 billion bailout in exchange for taking harsh austerity measures that officials believe will make it more competitive. Greece will also write down 53.5 percent of the nominal face value of its privately held debt as a way of getting back on track by 2020.
The aid would come atop a previous bailout of $145 billion in May 2010, making Greece, a country of 11 million people that is just 2 percent of the euro zone’s economy, the recipient of by far the largest bailout in European Union history.
Last week, Juncker vowed to spend his weekend doing everything he could to find ways to further cut Greece’s debt. But by Monday, it became clear just how short it would fall of its targets.