By Gabriele Steinhauser And Matthew Dalton
BRUSSELS--Greece struck a tenuous agreement for a four-month
extension of its bailout Friday, removing immediate concerns over a
potential exit from Europe's currency union but setting the stage
for more tense negotiations over the country's financial
future.
The deal, reached after weeks of often harsh exchanges between
Athens and other European capitals, forced the left-wing government
of Prime Minister Alexis Tsipras to temper many of the
anti-austerity pledges that swept it into power last month.
The tough negotiations have frayed relationships between Greece
and other governments, and particularly with Wolfgang Schäuble, the
German finance minister.
"Now we hope that trust can grow again. There's a lot of room
for growth, " Mr Schäuble said afterward.
Market rose on Friday as the agreement was reached, with the
Stoxx Europe 600 edging up 0.6% to reach its highest level since
November 2007. Both Germany's DAX index and the U.K.'s FTSE 100
climbed 0.4%. The euro was up against the dollar and the yen.
U.S. stocks also rose on the news, as the Dow industrials, the
S&P 500 and the Russell 2000 small-company index hit all-time
highs.
Greece's Finance Minister Yanis Varoufakis rejected claims that
Friday's deal constituted a surrender of the government's
anti-austerity promises. "Our pre-electoral program was about four
years. This deal is about four months," he said.
The agreement to extend the bailout that was due to run out Feb.
28 should fend off immediate concerns about Greece's deteriorating
finances and help stem an outflow of deposits from its banks.
However, concerns about Greece's ability to pay its debts will
linger. The deal leaves a series of hurdles that could trigger
further bouts of nervousness, with the first to be encountered next
week.
Under the agreement, Greece has to present by Monday a list of
budget cuts and economic overhauls, which has to pass the scrutiny
of the supervisors of the bailout, the so-called troika of the
European Commission, the European Central Bank and the
International Monetary Fund. On Tuesday, finance ministers will
review the proposals.
Only once these measures have been implemented will Athens
received the next EUR7.2 billion slice of a EUR240 billion ($273
billion) bailout that has kept it afloat for almost five years.
Crucially, the four-month extension only takes Greece to the end
of June, upping the pressure to negotiate a follow-up rescue deal
in time for almost EUR7 billion in bond repayments to the ECB in
July and August.
The Greek finance minister can take some small victories back to
Athens. Greece will likely be allowed to run a smaller primary
surplus--a measure of its budget balance that strips out interest
payments--than the 3% of gross domestic product mandated by its
bailout deal this year.
But the ministers' statement stressed that this concession had
been made only because the economy has performed worse than
expected.
"Today we have found partners among those who up until very
recently looked at us with suspicion," said Mr. Varoufakis. "There
are some partners who still look at us with suspicion."
Several ministers said that the economic deterioration was due
to the uncertainty following Mr. Tsipras's election win last
month.
The Athens government will also get to swap out some measures
that had been set out in the existing bailout deal, but only if it
can come up with substitutes that have the same financial and
economic impact.
Most importantly, if the deal is concluded, it should allow
Greek banks to once again tap the ECB for short-term
funding--restoring a protection whose absence has been one reason
for Greek depositors withdrawing their savings in recent weeks.
"As of today we're beginning to be co-authors of our destiny,
co-authors of the reforms that we want to implement," Mr.
Varoufakis said.
It isn't clear whether that will be enough to sell Friday's deal
to a coalition in Athens that comprises leftist activists who have
spent years campaigning against the country's bailout as well as
right-wing nationalists focused on regaining sovereignty.
"Today's deal is a good first step, but largely theoretical. Can
it get through Parliament?" said Mujtaba Rahman, Europe director
political risk consultancy Eurasiagroup. "The governing coalition
[in Athens] doesn't have a mandate to implement this deal."
After two-failed meetings over the past 10 days, in which
ministers couldn't even agree on a joint statement, negotiations on
Friday took a different tack.
Rather than immediately launching into a discussion among all 19
ministers, the talks were concentrated among a few key players,
including Mr. Schäuble, French Finance Minister Michel Sapin, IMF
Managing Director Christine Lagarde and ECB President Mario
Draghi.
Mostly absent from those talks was Mr. Varoufakis, according to
officials present. "He didn't play a role here," said one official,
adding that at times the main players would congregate in the
hallway between the French, IMF and ECB offices.
Only once the main players had agreed on a statement, including
the four-month extension rather than the six months that Athens had
initially requested, was the deal presented to the other ministers.
After another round of discussions, they signed off on the
statement.
After the meeting, Mr. Schäuble, the most ardent opponent of
anti-bailout rhetoric coming from the government in Athens,
complained about the political complications Greece's finances were
causing other eurozone countries.
"Don't think that this is fun," Mr. Schäuble said.
Viktoria Dendrinou contributed to this article.
Write to Gabriele Steinhauser at gabriele.steinhauser@wsj.com,
Viktoria Dendrinou at viktoria.dendinrou@wsj.com and Matthew Dalton
at matthew.dalton@wsj.com
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