The complex deal brings an end to a dispute between the EU and the IMF over the viability of Greek debt and gives the go-ahead by 13 December to an urgently needed €34.4 billion instalment of the international aid programme to Greece.
Another €9.3 billion will be paid in three “tranches” in the first three months of next year.
The euro hit a one-month high, rising 0.3 percent to $1.3010, and Asian shares rose in morning trading after news of the deal was announced.
Jean-Claude Juncker, the chairman of the Eurogroup of the single currency’s finance ministers, said the agreement would bring new hope to Greece.
“This is not just about money. This is the promise of a better future for the Greek people and for the euro area as a whole, a break from the era of missed targets and loose implementation towards a new paradigm of steadfast reform momentum, declining debt ratios and a return to growth,” he said.
Every detail of the Greek economy is worse than officially forecast just weeks ago.
The budget unveiled this morning estimates that public debt will reach 189pc of GDP next year (not 179pc).
The budget deficit will be 5.2pc (not 4.2pc).
The economy will shrink 4.5pc next year (not 3.8pc).
Unemployment is already 25.1pc and 55.6pc for youth.
Just for the record:
The EU-IMF Troika originally said that the economy would contract by just 2.6pc in 2010, before growing by 1.1pc in 2011, and 2.1pc in 2012.
In fact Greek GDP contracted by 4.5pc in 2010, 6.9pc in 2011, and will shrink 6.5pc this year, and now 4.5pc next year.
The cumulative error is colossal.
One could slash private debt by 100pc of GDP, boost growth, stabilize prices, and dethrone bankers all at the same time. It could be done cleanly and painlessly, by legislative command, far more quickly than anybody imagined.
The conjuring trick is to replace our system of private bank-created money — roughly 97pc of the money supply — with state-created money. We return to the historical norm, before Charles II placed control of the money supply in private hands with the English Free Coinage Act of 1666.
Specifically, it means an assault on “fractional reserve banking”. If lenders are forced to put up 100pc reserve backing for deposits, they lose the exorbitant privilege of creating money out of thin air.
The nation regains sovereign control over the money supply. There are no more banks runs, and fewer boom-bust credit cycles. Accounting legerdemain will do the rest. That at least is the argument.
The two mainstream parties that approved the second international £110 billion rescue loan and its stringent requirements for cuts were heavily punished as support surged for the Left and Right.
The shattering of the political status quo threw into doubt Greece’s commitment to meeting the terms of its debt and could spread instability throughout the euro zone.
Weeks of uncertainty are likely to follow as numerous parties vie to cobble a majority coalition, with a fresh election within two months a distinct possibility.
There will also be fears that ensuing political instability will see a return to the street violence that has scarred Athens since the debt crisis surfaced two years ago.
Exit polls said the conservative monolith New Democracy would finish first with a maximum of 20 per cent, while Pasok, the main socialist party, would suffer a dramatic fall to 13-14 percent, a third of what it received when winning the 2009 election. Voters held both responsible for years of mismanagement and corruption.
At the meeting of the International Monetary Fund recently, Canada decided against contributing more resources to support the eurozone. We also argued that all countries borrowing from the IMF should be treated equally. We took these positions because we believe they are in the best interests of the eurozone, of the IMF, and of the international community.
We have always supported the IMF’s important systemic role in promoting economic stability by providing loans to countries that have exhausted their domestic options, and placing these countries on a path to sustainability through time-limited interventions. But it is not the IMF’s role to substitute for national governments.
In order for any IMF action in Europe to be successful, a sense of direction and a comprehensive blueprint to return to sustainability are necessary. The question of sustainability cannot be separated from that of the future of the European monetary union. As such, its members should take the lead in defining a comprehensive and credible blueprint. This requires more than incrementalism and wishful thinking. Europe has taken important steps in this direction with the fiscal compact, with economic and fiscal reforms in Italy and Spain, with an enhanced firewall, and with the recent actions of the European Central Bank to provide liquidity support. However, more is%2
At a time when the UK Government is imposing another £16bn of spending cuts, is abolishing pensioner tax reliefs, and is apparently so financially stretched that it needs to tax warm pasties, it has somehow managed to find an additional £10bn to bail out the eurozone. This from a prime minister who declares himself a “eurosceptic”. Is it any wonder that the Tories are trailing in the polls?
I’ve found myself genuinely torn by the debate around new loans to the International Monetary Fund (IMF). On the one hand, I’m a supporter of multilateral solutions, and find the spectacle of so many countries, some of them quite poor, coming together to create a bigger and more credible financial safety net both noble and inspiring.
Britain was one of the founding fathers of the IMF, and whatever the rights and wrongs of the euro, our future is vitally dependent on a stable and prosperous Europe. It would have seemed isolationist and almost gratuitously self-destructive to have stayed out while so many others were participating.
The Chancellor is braced for a political backlash against the move, which was condemned by some Conservative MPs, at a time of unprecedented public spending cuts and a squeeze on family finances.
Mr Osborne has repeatedly pledged not to use British money to bail out the euro. He is now facing accusations that the IMF funds are an indirect way of helping to prop up the beleaguered single currency.
Senior government sources said it would be “incredibly irresponsible” for Britain not to have offered the extra money amid fears that countries using the euro are on the brink of being plunged back into crisis.
The contribution means every household has a potential liability equivalent to more than £1,600 to help rescue troubled foreign countries.
Britain will have a total liability to the IMF of almost £40 billion, as well as billions more in separate loans to Ireland and Greece.
There are few economic reads quite as sobering as the International Monetary Fund’s biannual Fiscal Monitor, the latest edition of which was published this week. The deterioration it charts looks alarming for Britain, with gross public indebtedness expected to rise from little more than 40 per cent of GDP before the financial crisis began to an eye-popping 92.8 per cent by 2014. But sickening as this is, we are by no means the worst offenders.
According to the IMF, gross indebtedness in the US will be 112 per cent of GDP by the same date, Italy 123.4 per cent, and Japan an astonishing 245.6 per cent. Ruination of the public finances is a phenomenon common to virtually all the major advanced economies. This is unfamiliar territory. Fiscal collapse of such magnitude used to be a problem confined to unstable, developing economies, or to the aftermath of major wars. The Great Recession has transformed it into a peacetime affliction of Americans and Europeans.
Finance ministers and central bank governors in Washington this week for the IMF’s spring meeting are at a loss for solutions. The orthodox approach to the problem – fiscal consolidation – seems only to be making things worse.
The IMF said yesterday that even a slightly faster than expected increase in life expectancy could impose a huge new financial burden on Western economies such as Britain. “The time to act is now,” it said.
Governments and the financial sector have consistently underestimated how quickly average lifespans will rise, IMF researchers found.
They believe it has been routinely understated by about three years, which could render public finances unsustainable, they warned.
For Britain, the IMF calculated that on the “not unreasonable” assumption that the entire cost would fall on taxpayers, the country’s public debt would rise from 76 per cent of gross domestic product to as much as 135 per cent.
In today’s money, that additional cost would be about £750 billion.
Speaking as finance ministers meet in Mexico for the G20 summit, the Chancellor said extra funds would not be handed over until countries who use the struggling single currency commit resources themselves.
In an interview with Sky News, Mr Osborne said: “We are prepared to consider IMF resources but only once we see colour of eurozone money and we have not seen this.
“While at this G20 conference there are a lot of things to discuss, I don’t think you’re going to see any extra resources committed here because eurozone countries have not committed additional resources themselves, and I think that quid pro quo will be clearly established here in Mexico City.”
The Chancellor also refused to reveal if he would be increasing the personal tax allowance to £10,000 at next month’s Budget.
“Any tax cut would have to be paid for … what we are not going to do in the Budget is borrow any more money to either increase spending or cut taxes,” Mr Osborne said.