ATHENS — Europeanleaders called the massive new bailout for Greece announced Tuesday “unprecedented,” but anxiety lingered over whether the rescue plan would work.
Officials were mindful of a recent report by the International Monetary Fund, the European Commission and the European Central Bank that gave a gloomy assessment of the rescue plan and predicted a strong likelihood that Greece would not be able to avoid future bankruptcy, even with the second bailout. On Tuesday, they announced that they were taking strict measures to try to ensure that Greece lives up to the deal.
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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To protect the $172 billion that international lenders will be channeling to Greece, European leaders said they would help the country only if it puts language in its constitution that requires it to make paying its debts a “priority.” The package directs the bailout money to be rolled into a special account and then passed out to Greece’s creditors, the cash shielded from the Greek government’s other financial needs. European officials also said they would station a permanent team of inspectors in Athens to make sure Greece was implementing far-reaching austerity measures.
“We have seen Greece has been derailing several times in the past years now. Without these special measures, we could not be sure whether or not Greece would implement” the rules, Dutch Finance Minister Jan Kees de Jager told reporters in Brussels on Tuesday. “Implementation risks are high in the case of Greece, higher than anywhere else.”
Despite the tough words from their partners, Greek leaders allowed themselves a brief respite Tuesday, after weeks of facing the specter of a default on March 20, when a $19 billion debt payment is due. A default could reverberate through world markets and could devastate Greece, where the unemployment rate is 21 percent and the economy shrank almost 7 percent last year.
“A nightmare scenario was avoided,” Greek Finance Minister Evangelos Venizelos told reporters in Athens on Tuesday, calling the deal “maybe the most important in Greece’s postwar history.”
There’s still more to be done in the coming weeks before the deal is final. Greece’s private creditors must write off about $141 billion in loans, and the German, Dutch and Finnish parliaments must agree to release money for the bailout.
And Greece will have to pass more austerity measures.
The IMF will probably contribute less money proportionally to the new bailout than for previous ones, German Finance Minister Wolfgang Schaeuble indicated Tuesday. The agency had proposed $17 billion in new funding plus $13 billion left over from the first bailout, although that would have to be approved by its board, Schaeuble said.
But even with the assistance, Greece’s economic situation is dire. The analysis done late last week by the so-called troika showed that even small failures to meet interim economic targets could cause Greece to fall far short of its 2020 goals, leaving the country mired in troubles and Europe potentially on the hook for more money.