Last Update: 09:49
Now, Prime Minister Alexis Tsipras is betting that by conceding to more belt-tightening, including pension cuts and a broadening of the tax base, he can win a bigger prize: a restructuring of Greece΄s crushing EUR315 billion debt that will lure back international investors and revive its economy. But Greece must first win the support of a German government wary of conceding too much ahead of national elections in September.
According to Wall Street Journal restructuring and a return to the capital markets could mark a turning point. Years of thorny negotiations have exacted an enormous social and economic toll and threatened a crash out of the euro, a potential earthquake for the common currency.
Pressure has been rising on Athens as politicians in Europe try to avoid making unpopular concessions on Greece΄s debt. Tuesday΄s agreement, which comes after months of renewed brinkmanship over how much new austerity Greece is willing to accept, will release a payment of around EUR7 billion, without which Greece would be insolvent by July.
The deal could potentially ease another headache for the EU, which has been dogged by a series of challenges. It comes as confidence in the bloc is slowly returning, as nationalist movements threatening the prospects of the eurozone appear to be receding and the region΄s economy finally recovers after a long and painful downturn.
"It is now for all partners to reach an understanding on the question of Greece΄s debt in the coming weeks," said Pierre Moscovici, EU΄s economics commissioner. "With this agreement, we need now to write a new story of stability, jobs and growth for Greece and for the euro area as a whole."
The agreement sets the conditions for talks, possibly by the end of May, with creditors on a deal to lengthen the maturity and lower payments on Greece΄s debt.
If the debt becomes more sustainable, the European Central Bank could decide to include Greece in its bond-buying program, effectively clearing the way for Athens to return to capital markets for financing. It has been shut out of international bond markets since 2010, except for a brief window in 2014.
Other EU countries that needed bailouts, such as Ireland, Portugal and Cyprus, have long returned to capital markets.
At least one local businessman was pleased with the deal.
Enormous obstacles remain. Greece΄s serious problems mean the International Monetary Fund doesn΄t expect the country to grow more than 1% in the long term.
The insistence by Greece΄s creditors on large budget surpluses means the country, whose government debt is 179% of GDP, will live with extremely tight budgets for many years.
Greek banks are immersed in nonperforming loans, which make up 45% of all lending, contributing to a steady contraction in private credit since late 2010. And officials privately don΄t expect a wholesale solution to that problem soon.
The Greek economy has paid a heavy price for the delay in debt talks and the tussle with international creditors over the next bailout payment. International investors interested in Greek assets last spring decided against it. Meanwhile, Greeks withdrew EUR2.3 billion in deposits from the country΄s banks in the first two months of the year.
The economy contracted 1.2% in the fourth quarter of 2016, halting the gradual decline in Greece΄s sky-high unemployment rate and pushing lending down 6.6% in February, according to UBS. Economists now expect gross domestic product to grow 1.5% this year, down from a 2.7% forecast late 2016.
Tuesday΄s deal also includes measures aimed at rendering the economy more competitive, including legislation to encourage out-of-court settlement for companies to work out their debts to banks, tax authorities and suppliers.
If the ECB includes Greek sovereign debt in its bond-buying program, Athens could expect to sell bonds with an interest rate of about 4%, according to some experts. While that is higher than the 1% it now pays for bailout funds, a return to capital markets by the government would trickle down by helping lower the interest rates Greek banks and companies now pay to issue bonds.
It could also ease access to capital markets for the many Greek companies currently shut out of bond markets. A handful of export-oriented firms such as oil refiner Motor Oil and gaming company OPAP have issued five-year bonds with coupons of about 3.5%, but small companies struggle to secure any financing at all.