Greece set for bailout extension after eurozone ministers approve reforms

BRUSSELS, Belgium -- Greece cleared a major hurdle Tuesday in its ongoing battle to remain solvent as its European creditors approved a 4-month extension to its financial bailout -- but the cash-strapped country has much more to do to convince its partners that it deserves longer-term help beyond the summer.

The country's creditors in the 19-country eurozone endorsed Greece's request for the extension after the European Commission, European Central Bank and International Monetary Fund -- the main institutions handling Greece's loans -- provisionally backed a list of reforms that Athens proposed in a letter late Monday.

Greece had to draw up the list, which includes measures to combat tax evasion and corruption, to get the bailout extended. Without a financial lifeline over the coming few months, it faces the possibility of going bankrupt, imposing capital controls and ditching the euro.

"The three institutions agreed to start the process with this," eurogroup president Jeroen Dijsselbloem said on RTL television. "They thought it was a serious enough list and all the countries have just agreed with that in the meeting so we can start."

Tuesday's deal comes just days before Greece's 240 billion-euro ($270 billion) bailout program expires and is aimed at buying time for both sides to agree on a longer-term deal to ease the burden of the bailout loans. Greece will, in all likelihood have to negotiate a new financial agreement with its creditors to see it past June, when big bond repayments are due. Though Greece has made great strides getting its public finances into shape -- it is actually posting a surplus once debt and interest payments are stripped out -- its debt burden remains exceptionally high at around 175 per cent of the country's annual gross domestic product.

The extension must now be approved by some national parliaments, including Germany's, before midnight Saturday.

Up until last Friday's eurogroup meeting that Greece's bailout could be extended provided it came up with an acceptable reform package, there had been growing concerns that the country would run out of money and be forced out of the euro.

The new left-wing Syriza government was elected to get rid of the austerity measures that accompanied the rescue money that Greece accepted after it was unable to borrow in international markets. It blames the spending cuts and tax rises as well as unfair economic reforms for the damage done to the Greek economy. Despite a return to modest growth in 2014, Greece's economy is about a quarter smaller than it was in 2008 and unemployment and poverty levels have swelled dramatically.

Though it hasn't managed to re-write Greece's austerity script, the Greek government does at least have some ownership of the reform agenda. Since Greece's first bailout in May, 2010, the country has had to accept the prescription of its creditors in return for the bailout cash.

The reform plans, which according to the Greek government will not impact on the country's fiscal situation, were sent just ahead of Monday's deadline and have met with a favourable response in the markets. The main stock market in Athens closed up 9.8 per cent.

"We can stop worrying about Greece for now," said Chris Beauchamp, senior market analyst at IG.

Still, the Greek government still has a lot to do to convince its creditors that it can deliver substantive change.

"We call on the Greek authorities to further develop and broaden the list of reform measure," the eurozone said in a statement Tuesday.

Dijsselbloem also urged Greece to move quickly, pointing out that the reform program needs to be updated and implemented within four months.

The IMF appeared the most pessimistic, insisting that the vague reform promises needed to be turned into real action.

In a letter, IMF managing director Christine Lagarde said that in many key areas, the list "is not conveying clear assurances that the government intends to undertake the reforms envisaged."

Specifically, she said there were no "clear commitments to design and implement" reforms to pensions and sales taxes, or "unequivocal undertakings" to continue previously agreed policies to open up closed sectors, on administrative reforms, privatization and labour market reforms.

In its list of reforms, the Greek government says it will combat tax evasion and corruption, reduce bureaucracy, review public spending, modernize the pension system, reform the judicial system and address rising poverty through measures that have "no fiscal effect." It says authorities will "turn the fight against corruption into a national priority."

It pledges not to roll back any privatizations that have already been completed and to "respect the process, according to the law," of any tenders that have already been launched. Privatization was one of the elements of Greece's bailout that Prime Minister Alexis Tsipras' Syriza party had promised to cancel.

The letter is a general outline of policies and does not include any figures or specific details on how the policies will be achieved.

European Economics and Finance Commissioner Pierre Moscovici said he would work "with the new administration to elaborate what are at the moment still general commitments and transform these into clear policy actions."