Eurozone approves new $173B bailout for Greece

Eurozone approves new bailout for Greece
Eurozone approves new bailout for Greece

    JUST WATCHED

    Eurozone approves new bailout for Greece

MUST WATCH

Eurozone approves new bailout for Greece 02:09

Story highlights

  • Economist: "It's difficult to see this turning around the Greek economy anytime soon"
  • Greece is trying to cut debt to 121% of GDP, down from 160%
  • Greece approved an austerity pact this month, leading to riots

Eurozone finance ministers sealed a deal Tuesday morning for a second bailout for Greece, including €130 billion ($173 billion) in new financing.

The finance ministers from the 17 nations that use the euro, known as the Eurogroup, gave Greece the funding it needs to avoid a potential default next month.

While this new deal provides some short-term relief for Greece, difficult days lie ahead as the government tries to trim debt to 121% of the country's gross domestic product by 2020. Greece's debt now stands at about 160% of GDP.

The announcement came at an early morning press conference in Brussels after finance ministers met for more than 13 hours. "In the past two years and again this night, I've learned that 'marathon' is indeed a Greek word," said Olli Rehn, vice president of the European Commission. "But in the end we came to an agreement (that is) very far-reaching and important."

Behind the Greek bailout negotiations
Behind the Greek bailout negotiations

    JUST WATCHED

    Europe changes under a new Greek bailout

MUST WATCH

Europe changes under a new Greek bailout 02:26
PLAY VIDEO
Will bailout save Greece?
Will bailout save Greece?

    JUST WATCHED

    Will bailout save Greece?

MUST WATCH

Will bailout save Greece? 04:46
PLAY VIDEO
Greece's bond yield spikes
Greece's bond yield spikes

    JUST WATCHED

    Greece's bond yield spikes

MUST WATCH

Greece's bond yield spikes 01:19
PLAY VIDEO
Second Greek bailout approved
Second Greek bailout approved

    JUST WATCHED

    Second Greek bailout approved

MUST WATCH

Second Greek bailout approved 06:06
PLAY VIDEO

"It's clear that the Greek economy cannot rely anymore on a large public administration financed by cheap debt, but rather needs to lean on investment both Greek and foreign," Rehn said.

"This should give Greece enough space to improve its competitiveness," added Christine Lagarde, managing director of the International Monetary Fund, saying that the goal of the terms of the new bailout is to create growth for the Greek economy. "There are downside risks, that is clear."

Greece is in its fifth year of recession, and the government reported last week that Greece's GDP, the broadest measure of a nation's economic output, fell 6.8% last year.

That's much worse than the 6% contraction the government originally predicted. Fourth-quarter GDP also continued to decline, shrinking 7%, compared with a 5% decrease in the third quarter.

This new program will give "financial stability in Greece and in the euro area as a whole," the Eurogroup said in a statement announcing the deal. "The Eurogroup is fully aware of the significant efforts already made by the Greek citizens but also underlines that further major efforts by the Greek society are needed to return the economy to a sustainable growth path."

An austerity pact was approved by the Greek parliament on February 12, leading to some of the worst riots in the country in recent years. The package, which included deep cuts in government spending, wages and pensions, helped pave the way for eurozone finance ministers to sign off on Tuesday's new bailout deal.

Tuesday's bailout deal "certainly removes some near-term risk," said Frederick Neumann, senior economist for HSBC in Hong Kong. "I think it's clear that questions will emerge whether Greece can stomach these cuts."

Greek voters are scheduled to head to the polls for parliamentary elections in April, a vote that will widely be viewed as a referendum on the tough austerity measures the nation faces.

Behind the Greek bailout negotiations
Behind the Greek bailout negotiations

    JUST WATCHED

    Behind the Greek bailout negotiations

MUST WATCH

Behind the Greek bailout negotiations 02:06
PLAY VIDEO
'Not the right agreement' for Greece
'Not the right agreement' for Greece

    JUST WATCHED

    'Not the right agreement' for Greece

MUST WATCH

'Not the right agreement' for Greece 03:10
PLAY VIDEO
Borg: More steps needed on bailout deal
Borg: More steps needed on bailout deal

    JUST WATCHED

    Borg: More steps needed on bailout deal

MUST WATCH

Borg: More steps needed on bailout deal 04:00
PLAY VIDEO
Short-term relief for Greece?
Short-term relief for Greece?

    JUST WATCHED

    Short-term relief for Greece?

MUST WATCH

Short-term relief for Greece? 04:06
PLAY VIDEO

Greece has also hammered out a plan to write down €100 billion worth of Greek government bonds and swap existing debt for securities with lower interest rates, a deal that would result in losses of 53.5% of nominal value for the private sector.

The euro raised a half percent against the dollar to 1.327 within minutes of the announcement, but otherwise market reaction was muted during Asia trading hours, suggesting investors have already priced in the bailout deal, analysts said.

"There are details to be worked out. Big work is done now, I think that will provide relief to financial markets," Neumann said. "But it's difficult to see this turning around the Greek economy anytime soon."

While the Greek economy is small compared to other eurozone countries -- "about the size of Connecticut compared to the rest of the United States," Neumann said -- the real threat is keeping the debt crisis and borrowing costs from spiraling to larger economies in the eurozone. A default by Greece could spark "a Lehman-like event," he said, referring to the collapse of the investment bank that catalyzed the 2008 financial crisis.

"I think we understand these issues much better than we did three years ago," Neumann said. "Kicking these issues down the road has been useful to some extent" because a default would be less likely to take the markets by surprise, he added.

"The next hurdle is to create a firewall to put up sufficient money to know that Ireland and Portugal won't be next," Neumann said. "This today is really short-term relief, but we'll probably be looking at these issues (at) some point."

There has been some speculation that Greece might exit the eurozone, but Eurogroup president Jean-Claude Juncker stressed ahead of Monday's meeting that Greece should remain a member of the euro currency union.

"It is the intention of nobody to have Greece outside of the eurozone," he said. "That would be a bad solution for Greece and ... a bad solution for the euro area."

The Greece deal is not the final step toward stabilizing eurozone debt woes. Pressure remains on both the IMF and the European Central Bank to provide more support measures, analysts said.

"From our perspective, clearly you need to have more firepower on the table," said economist Leif Eskesen at HSBC. "Investors are waiting to see if the European Central Bank will make more direct steps in the sovereign bond market, buying up debt from countries considered vulnerable like Spain and Italy."

        Markets in crisis

      • German Chancellor Angela Merkel talks with Finance Minister Wolfgang Schaeuble during a session at the Bundestag (lower house of parliament) on June 25, 2013 in Berlin.

        Schaeuble: 'Don't see' bailouts

        German Finance Minister Wolfgang Schaeuble says the eurozone's problems are not solved, but "we are in a much better shape than we used to be some years ago."
      • IBIZA, SPAIN - AUGUST 21:  A man dives into the sea in Cala Salada beach on August 21, 2013 in Ibiza, Spain. The small island of Ibiza lies within the Balearics islands, off the coast of Spain. For many years Ibiza has had a reputation as a party destination. Each year thousands of young people gather to enjoy not only the hot weather and the beaches but also the array of clubs with international DJ's playing to vast audiences. Ibiza has also gained a reputation for drugs and concerns are now growing that the taking and trafficking of drugs is spiralling out of control.  (Photo by David Ramos/Getty Images)

        Spain keeps partying

        Summer could not have come soon enough for Lloret de Mar, a tourist resort north of Barcelona. Despite the country's troubles, it's partying.
      • The Euro logo is seen in front of the European Central bank ECB prior to the press conference following the meeting of the Governing Council in Frankfurt/Main, Germany, on April 4, 2013.

        OECD: Slow recovery for Europe

        The global recovery has two speeds: That of the stimulus-fed U.S. and that of the austerity-starved eurozone, according to a new report.
      • The flags of the countries which make up the European Union, outside the European Parliament in Strasbourg, France.

        Europe's new threat: Slow decay

        The "rich man's club" of Europe faces economic decay as it struggles to absorb Europe's "poor people", according to economic experts.
      • Packed beaches and Brit pubs? Not necessarily. Here's what drew travelers to one of Spain's most beautiful regions in the first place

        Spain aims for big tourist summer

        Spain's economic crisis is in its sixth straight year yet tourism, worth 11% of GDP, is holding its own, one of the few bright spots on a bleak horizon.
      • Photographer TTeixeira captured these images from a May Day protest in Porto, Portugal, Wednesday by demonstrators angered by economic austerity measures. "People protested with great order, but showed discontent against the government who they blame for this economic crisis," she said. "They want the government to resign and the Troika [European Commission, International Monetary Fund and European Central Bank] out of this country."

        May Day protesters flood Europe

        As European financial markets close for the spring celebration of May Day, protesters across Europe and beyond have taken to the streets to demonstrate.
      • Croatian Prime Minister Zoran Milanovic delivers a speech in Mostar, on April 9, 2013. Prime Ministers from Bosnia's neighboring countries arrived in Bosnia with their delegations to attend the opening ceremony of "Mostar 2013 Trade Fair".

        Croatia PM: We need Italy to recover

        As Croatia prepares to enter the 27-nation European Union, the country's Prime Minister says Italy must return to being the "powerhouse of Europe."
      • Anti-eviction activists and members of the Platform for Mortgage Victims (PAH) take part in a protest against the government's eviction laws in front of the Popular Party (PP) headquarters in Mallorca on April 23, 2013.

        Spain's unemployment hits record

        Spain's unemployment rate rose to a record high of 27.2% in the first quarter of 2013, the Spanish National Institute of Statistics said Thursday.
      • People protest against the Spanish laws on house evictions outside the Spanish parliament on February 12, 2013 in Madrid, Spain.

        Welcome to Madrid: City of protests

        Spain has seen hundreds of protests since the "Indignados" movement erupted in 2011, marches and sit-ins are now common sights in the capital.