Eurozone finance ministers have approved a list of Greek reform measures that should unlock the remaining funds from the 240 billion euro ($273 billion) bailouts and insure that the rescue programs do not finish at the end of the month.
The four month extension was less than the six months requested by Greece and must still be voted on by the legislatures of a number of EMU countries, including Germany and Finland, but agreement is expected.
Yields on Greek three-year bonds dropped 279 basis points to 12.28 percent, the lowest since before the new government was sworn in on January 27th. The 10-year yield fell 100 basis points to 8.6 percent. Stocks also rallied, with the ASE index jumping as much as 8.6 percent.
The European Commission, the executive arm of the European Union, had earlier assented to the proposals submitted by Greece as a condition of Friday's extension accord with the EMU finance ministers. A spokesman for the commission labeled the package as "sufficiently comprehensive."
However, the two other members of the so-called Troika, which backed the Greek bailouts, the ECB and the International Monetary Fund have expressed reservations. The IMF said the measures were "generally not that specific", and the ECB voiced similar doubts. Neither objection is expected to block the agreement once the German Bundestag passes the deal.
Although the government of Alexis Tsipras had promised to end the austerity imposed by Greece's lenders, the new agreement continues most of the measures disliked by the Greek population.
Privatization of state enterprises will go ahead, as will renewed efforts to improve income tax collection and the value added tax. Reform of the public administration and liberalization of labor markets to permit greater competition have also been promised again by the Athens government.
Eurozone finance ministers have said that no funds would be released to the government until the new promises have been implemented.
The impasse between Greece and her European creditors was not only caused by the election of the anti-austerity Syriza party but by Greece’s inability or refusal to complete the austerity reforms negotiated and promised by the former administration of Antonis Samaras.
Performance of those reforms was monitored by inspectors from the Troika, whose certification was required before the final tranche of cash was released to the Greek government. Those inspectors left Athens weeks ago unable to verify their completion.
The final installment of the bailout cash about 7 billion euros has not been released to the Greek government.
Sometime in the next two months Greece will run out of money to meet its obligations, internal and external. But the immediate threat and the one that probably dealt the most pressure on the Tsipras government stemmed from the banking system. Greek banks are almost exclusively dependent on the ECB to maintain capitalization, as their liquidity is impaired by high levels of withdrawals.
If the ECB blocked access to its ELA program because Greece had insisted on abandoning austerity and any further negotiation with its lenders had broken off, the Greek banking and financial systems would likely fail within days. There would be no time to plan a transition to a new currency or find replacement funding.
The problem of the Tsipras government is that although Greeks intensely dislike the imposed austerity program, blaming it for the economics disaster that has overtaken their country; they also want to stay in the euro. The two are mutually exclusive as long at Greece's creditors say they are.
In four months’ time, Greece will quite possibly be back in exactly the same spot with its lenders. After the acrimonious wrangling this time, a repeat performance of failure on the austerity measures, will find a thoroughly unsympathetic hearing in June.
Whatever the decisions made between now and then by the Tsipras government to stay or not in the euro and perhaps the EU, they will at least have four months to prepare. This time around they had none.
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