Tough road for Greece after bailout extension

Tough road for Greece after bailout extension
Greek Prime Minister Alexis Tsipras arrives ahead of the European Council Summit at the European Union (EU) Headquarters in Brussels.

ATHENS - The hard work for Greece's new anti-austerity government began Wednesday after it secured an extension to its lifeline financial bailout with promises to implement ambitious reforms and stick to its financial commitments.

First though a number of parliaments in the 19-nation eurozone, not least Greece's and sceptical powerhouse Germany, need to approve the four-month breathing space greenlighted by finance ministers on Tuesday.

If they say no, Greece's 240-billion-euro ($270-billion) bailout programme expires on Saturday. This could spark national bankruptcy, a run on banks and even a chaotic exit from the eurozone with untold wider consequences.

Greece's new programme aims to tackle tax evasion and corruption and save money with an efficiency drive throughout government including eliminating politicians' perks and slashing red tape.

But Prime Minister Alexis Tsipras had to temper pre-election promises to hike the minimum wage, reinstate laid-off civil servants and alleviate poverty with promises that this would only be done in consultation with Greece's creditors.

Already on Tuesday the plans received a cool response from the European Central Bank and the International Monetary Fund, which together with the European Commission hold the lion's share of Greece's 320 billion euros in debts.

IMF chief Christine Lagarde said the list lacks "clear assurances" on Greece's previous reform promises while the ECB said the measures "differ from existing programme commitments in a number of areas".

The eurozone ministers said too after an hour-long phone call on Tuesday that those three institutions believed Greece's new plan was merely "sufficiently comprehensive to be a valid starting point" for further negotiations.

"We avoided a crisis but there are many challenges ahead," EU Economic Affairs Commissioner Pierre Moscovici said.

Nonetheless the news buoyed financial markets, with Greek stocks soaring almost 10 per cent on Tuesday as fears of a "Grexit" -- a eurozone exit by Greece -- receded.

German Chancellor Angela Merkel, eurozone austerity's main proponent, asked her conservative party at a meeting Tuesday to back the extension when the lower house votes on Friday, a lawmaker said.

But she stressed that the "task is by no means done", the MP said.

French President Francois Hollande hailed it as a "good compromise". Spanish Finance Minister Luis de Guindos -- whose government is facing a major challenge from the anti-austerity party Podemos -- called it a "positive solution".

Historic haircut 

Greece has had to be bailed out twice -- in 2010 and 2012 -- to the tune of 240 billion euros plus a hugely controversial private-sector debt writedown or "haircut" worth another 100 billion euros.

A number of debt interest repayments are due in the coming months, and Greece needs to show by the end of April that its reforms are bearing fruit before the final disbursement of 7.2 billion euros from its bailout can happen.

And in the coming four months Tsipras, 40, wants to begin negotiating a new reform programme with Greece's creditors to put the country of 11 million people on a more equitable road to recovery after six years of recession and cuts.

This could include another renegotiation of Greece's debt -- if not a "haircut" then at least easier terms -- and yet more aid. German daily the Rheinische Post reported Wednesday this could be worth upwards of 20 billion euros.

"Even assuming that the deal (from Tuesday) holds, it is unclear how the government will meet its financial obligations between now and the end of April," said economist Jennifer McKeown at Capital Economics.

"And after that, there is a mountain to climb in agreeing how to make Greece's long-term debt position sustainable. That particular fight has clearly been put off for another day," McKeown said.

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