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Greece Manages to Temporarily Stave off Bankruptcy


"... a new day for all Greeks."

(Getty Images)

ATHENS, Greece (TheBlaze/AP) -- Greece has avoided imminent bankruptcy after its international creditors finally agreed to give it more money, but the cash-strapped country's economic distress is likely to drag on for years to come.

After three weeks of negotiations, Greece's euro partners and the International Monetary Fund (IMF) agreed to release vital loan payments totaling some €44 billion ($57 billion) and introduce a series of measures designed to reduce the country's massive debts to a more manageable level within a decade. These include reducing the interest rates Greece has to pay on the loans and a bond buyback program.

Greek Prime Minister Antonis Samaras hailed the agreement in Brussels early Tuesday as a victory that heralds "a new day for all Greeks," but the reaction in the markets was a bit more cautious.

Antonis Samaras (Getty Images)

For three years, Greece has been struggling to convince markets as well as its creditors that it can get a grip on its public finances, which spiraled out of control. The country is predicted to enter its sixth year of recession and is weighed down by an unemployment rate of 25 percent.

The so-called troika of the European Central Bank, IMF and the European Commission has twice agreed to bail out Greece, pledging a total of €240 billion ($310 billion) in rescue loans -- of which the country has received about €150 billion ($195 billion) so far. In return for its bailout loans, Greece has had to impose several rounds of austerity measures and submit its economy to scrutiny.

Without the bailout money, the country would be staring bankruptcy in the face together with a possible exit from the 17-country eurozone, with potentially chaotic repercussions for the world economy.

(Getty Images)

The meeting agreed to release €34.4 billion in loans to Greece in December, with the remainder issued in three installments in the first quarter of 2013. The money will be used to help recapitalize Greece's struggling banking industry and pay back suppliers.

Greek Finance Minister Yannis Stournaras said the deal was "very important for it keeps Greece in the euro, offers it a significant opportunity to exit the vicious cycle of recession and over-indebtedness, and contributes to its debt reduction."

But opposition leader Alexis Tsipras, whose Radical Left Coalition wants Greece to scrap its bailout commitments, accused the conservative-led governing coalition of failing to defend the country's interests.

"The solution does not include a viable program for Greece, therefore it is no solution," he said. "(It follows) successive failures of a program that has destroyed our society and meets none of the targets it sets."

The meeting in Brussels was the third time in the last two weeks that finance ministers from the 17 European Union countries that use the euro had tried to hammer out a deal on the next installment of bailout money for struggling Greece.

International Monetary Fund Managing Director Christine Lagarde takes her seat during a briefing at the IMF headquarters April 19, 2012 in Washington, DC. The International Monetary Fund and World Bank are holding their 2012 spring meeting through April 21. (Photo by Alex Wong/Getty Images)

The main aim of the bailout program is to right Greece's economy and get it to a point where it can independently raise money on the debt markets once the bailout loans start to run out at the end of 2014. It has been clear for months that the country is far from achieving that goal. Greece's debt levels are expected to hit 190 percent of its annual economic output next year- some €346 billion.

Current forecasts have Greece's debt level at 144 percent of its output by 2020. The IMF had originally said it would only agree to the bailout program if the country's debt was at 120 percent by then. Tuesday's meeting reached a compromise between the IMF and the euro ministers where Greece will now have to reach a 124 percent debt load by 2020 and below 110 percent by 2022. The difference between the current forecast and the new 2020 target would involve a cut in Greece's debt load of some €40 billion.

The deal still requires the authorization of a number of Parliaments in Europe, including Germany's, where patience with repeated Greek rescues has been running low.

A demonstrator holds a sign depicting German Chancellor Angela Merkel and three recent Greek prime ministers in Nazi uniforms during a protest against Merkel's visit to Greece on October 9, 2012 in Athens, Greece. (Photo by Milos Bicanski/Getty Images)

However, Rainer Bruederle, the caucus leader of the Free Democrats, the junior coalition partner, said he expects broad approval this time on Thursday.

"Conditions have been put together which maintain a tough mechanism toward Greece, but still save us from a collapse of the Greek economy possibly having consequences that could pull down the whole of Europe," he said.

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