The Greek government has agreed another bailout deal with its European creditors in exchange for further wide-ranging economic reforms, averting the prospect of a default when big debt payments become due in July and allowing negotiations around reducing its debt pile.
Greek finance minister Euclid Tsakalotos said: "The negotiation is completed, there's white smoke," according to Athens-based news agency ANA.
Jeroen Dijsselbloem, leader of the Eurogroup finance ministers, said he welcomed the agreement, and added it paved the way for discussions around a “credible strategy for ensuring that Greece's debt is sustainable”.
The Greek parliament will have to approve the deal, but Prime Minister Alexis Tsipras’s Syriza government is expected to be able to pass it with a small majority with coalition support.
The bailout will release the next tranche of the €86bn in debt relief due to be given to the country, allowing it to pay off €7.5bn maturing in July, according to Reuters.
Investors welcomed the agreement, pushing yields on Greek government debt to their highest point since 2014 as they bought Greek bonds.
Greek government 10-year yields, which move inversely to bond prices, fell by 34 basis points to reach lows of 6.127 per cent, according to Tradeweb.
The deal includes further reforms to the Greek labour market as well as changes to the energy sector.
The bailout was delayed for months by a spat between the International Monetary Fund (IMF) and other creditors, including the European Central Bank and the European Commission.
The IMF said the Greek government’s debt, which currently stands at 179 per cent of GDP, is unsustainable, suggesting it needed relief from some of its enormous debt pile.
European creditors have held firm in refusing to grant relief on the debts they hold. They hope reforms – including swingeing cuts to public services to reach a fiscal surplus– will spur growth in the Greek economy, eventually allowing it to pay its debts.
Greece’s economy shrank by 1.2 per cent in the fourth quarter of 2016, but its government managed to run a surplus of 3.9 per cent of GDP last year, far beyond what lenders had demanded.
In a statement bailout monitors at the European Stability Mechanism said: “This preliminary agreement will now be complemented by further discussions in the coming weeks on a credible strategy for ensuring that Greece’s debt is sustainable.”