Europe has agreed to extend its financial lifeline to Greece by four months from the end of February.
The deal struck Friday by finance officials in Brussels should keep Greece afloat and safely in the euro while it works out a long term plan for economic recovery.
Greece must still come up with a list of reforms acceptable to its creditors, including the International Monetary Fund and the European Central Bank, by Monday for the massive bailout to be extended beyond the end of the month. The list will need to be fleshed out and agreed with the various institutions involved by April.
“If our list of reforms is not backed by the institutions this agreement is dead and buried,” Greek finance minister Yanis Varoufakis told reporters.
“But it is not going to be knocked down by the institutions,” he said, adding the Greek government would work night and day between now and Monday to make sure that did not happen.
Without an extension of international support, Greece risked a run on its banks and would have had trouble paying its bills.
Two previous attempts to secure an agreement in the last 10 days have failed.
In order to win breathing space to negotiate a long-term deal with its creditors, the new left-wing Greek government appears to have backpedaled significantly on its initial demands.
It has pledged to honor its commitments to all creditors — mainly other European governments and institutions such as the European Central Bank — and to work within the framework of an austerity program it had condemned for killing the country’s economy.
Greece also said it would refrain from making any unilateral changes that would damage budget targets, the economic recovery or financial stability.
In return, its eurozone creditors have promised to use existing flexibility within the bailout program to make the burden less onerous.
Varoufakis said Greece had compromised to get a deal in the interests of all ordinary Europeans. But he denied that he had signed up for austerity.
“Unlike the previous government we have not committed to reducing pensions and increasing VAT in the next few months,” he said. Greece had won flexibility on the size of future budget surpluses, and would have much greater control over its future than before.
“We are no longer going to be following a script that was given to us by external agencies.”
The euro gained ground on news of the deal. European stocks have largely taken the uncertainty over Greece’s fate in their stride.
That’s because a Greek exit from the eurozone — or Grexit — is a much less scary prospect for markets than five, or even three years ago, when previous episodes in the country’s debt crisis shook confidence in the currency.
“All things considered, we believe that a Grexit would not lead to a degree of direct contagion that would drive other sovereigns out of the euro, not least because the eurozone rescue architecture is more robust than during the last Grexit scare in 2012,” said Standard Poor’s credit analyst Moritz Kraemer.