Eurozone finance ministers have struck a deal allowing Greece to access a fresh round of bailout money, after a marathon round of talks. Negotiations were tough and contentious, according to diplomats.
Athens and its creditors have been haggling over reforms and budget cuts for months in order to reach an agreement on the next tranche of money to be released from Greece's third 86-billion-euro bailout.
In July, Greece is due to repay 3.5 billion euros in loans to the European Central Bank (ECB) and the International Monetary Fund (IMF). Funds are also needed to prop up everyday government spending and public sector wages.
The new loans, the latest payment from the 86-billion-euro bailout program agreed to last year, would be conditional on Greece delivering on its reform promises. Greece has been receiving financial aid from other eurozone countries and the IMF since a bailout agreement in 2010.
IMF: Greece needs unconditional debt relief
But an deal on how to reduce the country's debt burden, a condition the IMF has insisted on if it is to provide any further financial support for Greece, had remained a sticking point at Tuesday's meeting with talks continuing well past midnight. Some speculated that the IMF may even have pulled out of the bailout program if Greece's debt burden wasn't cut, though IMF head Christine Lagarde said last month the institution had no intention of doing so.
Lagarde wasn't present at Tuesday's talks, leading some to speculate that a deal would not be reached. Going into the talks, Eurogroup head Jeroen Dijsselbloem stressed that "there is a real added value to have the IMF on board. It's not an option to go on without the IMF."
"There is a reason to look at debt relief because the debt is very high and there will be some problems in the future, I think the debt analysis shows that," Dijsselbloem said. But, he added, "an actual haircut of the loans will not happen. What we can look at is the annual debt burden, so Greece can on an annual basis pay its debts. If not, we are ready to help them in the coming years."
On Monday, a new report by the IMF's debt sustainability analysis (DSA) said if Athens were to have a chance of repaying its enormous debt load, it would need unconditional debt relief from EU creditors through at least 2040 in order to rebuild its economy and build up a fiscal surplus. The DSA called on creditors to fix interest rates on Greek debt at no more than 1.5 percent over that time and guarantee that debt, predicted to reach more than 333 billion euros this year, about 180 percent of the country's annual economic output.
But Germany, the EU's economic engine, has been opposed to any form of debt relief, or "haircut," insisting Athens must undertake wider fiscal and structural reforms before EU creditors agree to reduce Greece's debt burden.
Zsolt Darvas, a senior fellow at the Brussels-based Bruegel economic think tank, put the German reluctance into perspective.
"Greece's financial assistance programs were approved by the [German] Bundestag, and the government always promised that the money would be paid back," he told DW. "Debt relief would be an acknowledgement that those assessments were incorrect."
Earlier Tuesday, German Finance Minster Wolfgang Schäuble downplayed talk of a rift between the Eurogroup and the IMF. He said Greece's recent reforms needed to be closely scrutinized before any decision could be made, but added that he hoped the finance ministers would be able to come to an agreement.
"We will also find a way forward this time," he said, referring to past bailout agreements. "Ultimately, who is right and who is wrong remains to be seen. In the past, the pessimistic assumptions of the IMF weren't always accurate."
'Greece sticking to its promises'
On Sunday, as more than 10,000 people protested outside parliament, Greek lawmakers passed another set of controversial spending cuts, privatization efforts and tax hikes, intended to pave the way for a deal on Tuesday.
The bill introduced a contingency mechanism designed to automatically cut government spending if Athens fails to meet the 2018 fiscal targets of its bailout agreement - a key condition for Greece's international lender, the IMF.
"European leaders get the message that Greece is sticking to its promises. Now, it's their turn," said Greek Prime Minister Alexis Tsipras.
But Darvas, of the Bruegel think tank, believes international creditors should be taking a different tack. Instead of pulling the belt another notch tighter, he thinks Greece should be granted a one to two-year timeout from its fiscal austerity measures until GDP growth returns.
"What Greece needs the most at the moment is to regain economic growth. If growth would return, tax revenues would increase, job creation would start and everything would be easier," he told DW, pointing out that such a move would help with Greece's long-term public debt sustainability.
"The big problem for Greece right now is that the country has suffered a lot. Its GDP collapsed by 25 percent, employment collapsed by more than 20 percent, so what the country needs the most is to see the return of economic growth."