Greek financial markets rally on deal paving to bailout exit

ATHENS, Greece — Greece’s financial markets rallied Friday on news that the country’s creditors have agreed to debt relief measures that pave the way for an end to the nation’s eight-year bailout program in two months.

Bond markets rose, leading to a drop in the government’s borrowing rates. The yield on Greece’s benchmark 10-year bond eased 0.2 percentage points to 4.1 per cent. The main stock index was up 1.6 per cent.

The agreement concluded overnight in Luxembourg by finance ministers from fellow members of the 19-member eurozone grants Greece a ten-year extension in repaying a large chunk of its crippling debt load.

It also provides the country with enough ready cash to coast it over nearly two more years, without having to resort to expensive international bond markets after bailout loans run out in August.

But it also means the left-led government in Athens will have to stick to austerity measures and reforms, including high budget surpluses for more than 40 years. Adherence will be closely monitored on a quarterly basis — pretty much like during the bailout years.

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Eurozone officials and the International Monetary Fund hailed the decision, and Greek Finance Minister Euclid Tsakalotos spoke of an “historic moment.”

“I think it is the end of the Greek crisis,” Tsakalotos said in Luxembourg early Friday. “We believe the debt is now sustainable and we will be able to tap markets.”

Greece’s ability to finance itself after the end of its third bailout was a key concern. The country has issued bonds three times since the beginning of the bailout, twice within the last year. But investors charged high rates to lend Greece the money.

Under Friday’s decision, Greece will receive a final 15 billion-euro ($17 billion) bailout loan installment, 9.5 billion of which will shore up an existing cash kitty to keep the country afloat post-bailout.

This, Greek officials said, might even be used to pay off the country’s debts to the IMF earlier than planned.

Including previous loans and financing Greece is drawing on, eurozone officials said the country will have a buffer of 24.1 billion euros that cover its financial needs for about 22 months after the end of the program.

Tsakalotos voiced confidence that Greece will be able to tap bond markets “very soon,” but said the precise details have not yet been determined.

Hoping to soothe concerns over Greece’s long-term debt sustainability, European creditors also pledged to provide further future debt relief tweaks “in the case of an unexpectedly more adverse scenario.”

On the other hand, Greece must achieve ambitious primary budget surpluses — that is, surpluses that exclude the cost of debt servicing — of 3.5 per cent until 2022, and an average 2.2 per cent from then to 2060.

“Obviously we would have been much happier with a lower fiscal surplus,” Tsakalotos said. “We think it’s a tough requirement but you have to take the whole package as one.”

Nicholas Paphitis, The Associated Press