Eurozone finance officials on Friday reached a deal with Greece’s new leaders to extend the embattled southern European country’s massive debt agreement for four months.
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The deal somewhat eases a pressure-filled situation in which Greece has threatened to default on its debts, a move that could push the debt-laden country out of the 19-member euro zone and threaten the stability of the monetary union and its single-currency denomination.
European and U.S. securities markets saw increased volatility in recent weeks as uncertainty raised fears among skittish investors.
Greece’s new left-leaning government came to power earlier this year campaigning against the massive 2010 bailout that required Greece to endure years of austerity via massive cuts in government spending. Thousands were laid off from their government jobs, pensions were cut and social services slashed.
Never fully endorsed by most Greeks, the austerity programs came under increasing criticism as the years passed and led to the election of the new far left Syriza party led by Prime Minister Alexis Tsipras.
“The Eurogroup reiterates its appreciation for the remarkable adjustment efforts undertaken by Greece and the Greek people over the last years. During the last few weeks, we have, together with the institutions, engaged in an intensive and constructive dialogue with the new Greek authorities and reached common ground today,” Europe’s fiscal leaders said in a statement released Friday.
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U.S. stocks were sharply higher Friday afternoon in the wake of the announcement. The Dow Jones Industrial closed at a new high above 150 points.
In effect, the agreement announced Friday is between Greece and its main creditor Germany. In the past, German fiscal leaders have demanded more proof of tangible economic reform in return for extensions on paying back the bailout.
Reuters reported that German Chancellor Angela Merkel has said all EU partners want to keep Greece in the euro, however: “There is a need for significant improvements in the substance of what is being discussed so that we can vote on it in the German Bundestag, for example next week,” she said.
Tsipras spoke with Merkel on Thursday on the telephone and has spoken repeatedly to the leaders of France and Italy in the search for a solution that allows his radical government to fulfill election promises and hold its head high, Reuters reported.
“Greece has done everything possible so that we can arrive at a mutually beneficial solution, based on the principle of double respect: respect both to the principle of EU rules and to the electoral result of member states,” he said.
In its statement, European leaders said Greek officials have expressed “their strong commitment to a broader and deeper structural reform process aimed at durably improving growth and employment prospects, ensuring stability and resilience of the financial sector and enhancing social fairness.”
In addition, Greece authorities have committed “to implementing long overdue reforms to tackle corruption and tax evasion, and improving the efficiency of the public sector…The Greek authorities reiterate their unequivocal commitment to honour their financial obligations to all their creditors fully and timely.”