After 13 hours of talks in Brussels, the eurozone and the International Monetary Fund agreed to unlock 43.7 billion euros ($56 billion) in loans and on the need to grant significant debt relief for decades to come.
Greece must still meet a series of agreed conditions but “the decision will certainly reduce the uncertainty and strengthen confidence in Europe and in Greece,” said European Central Bank President Mario Draghi who left the talks before a final press conference.
Starved of bailout financing since the summer, Greek Prime Minister Antonis Samaras hailed the deal in Athens, while German Finance Minister Wolfgang Schaeuble said the package would be presented to German lawmakers by the end of the week.
Other member states will also have to obtain their parliament’s approval for the deal.
“Everything has gone well,” Samaras told reporters in Athens.
“All Greeks have fought (for this decision) and tomorrow is a new day for every Greek person,” he added.
Finance ministers, the IMF and the ECB said the money would be paid in four installments from December 13 through until the end of March, conditional on Greece funnelling income back to creditors at source and on the implementation by Athens of tax reforms settled with creditors.
The initial market response was upbeat.
On currency markets the euro was stronger in Asian trade as investors breathed a sigh of relief over the deal for Greece.
The 17-nation currency bought $1.2980 and 106.46 yen in Tokyo morning trade after briefly topping $1.30 for the first time in about a month.
That was up from $1.2971 and 106.38 yen in New York trade late Monday.
Asian stock markets also enjoyed the news in early trading, with Tokyo shares rising 0.38 percent by the break, Hong Kong up 0.25 percent and Sydney gaining 0.68 percent.
The results of the “laborious” negotiations according to IMF head Christine Lagarde are intended to see Greece’s debt-to-GDP ratio fall from an estimated 144 percent to 124 percent come 2020, and “substantially below 110 percent” of gross domestic product by 2022.
“The IMF wanted to make sure the euro partners would take the necessary actions to bring Greece’s debt on a sustainable path,” said Lagarde. “I can say today that it has been achieved.”
There will be a mixture of techniques used to bring down Greece’s debt burden.
These will begin with a buyback by Greece of old debt that has fallen in value on commercial money markets as well as national central banks across the eurozone foregoing profits on holdings of Greek debt whose worth has slumped.
Interest rates due to eurozone creditors will also be trimmed or deferred — Ireland and Portugal can now be expected to demand parity — while maturity dates will be pushed back by years.
The original bailout rewrite agreed for Greece in March was meant to see Greece’s debt fall to 120 percent of gross domestic product by 2020.
The IMF is pushing for a so-called “haircut” or write-down of debt by eurozone partner governments in the way banks wrote off most of the loans due to them earlier this year, but Germany has come out against this ahead of a general election next year.
Other Triple A-rated states, though, have said they would “not exclude” the possibility of a write-down of debt from 2015 onwards.
France has long been a firm backer of all efforts to keep Greece in the eurozone club, and having lost its Triple-A status, Finance Minister Pierre Moscovici said: “Let’s assume our responsibilities.”
Greece has been waiting since June for a loan instalment of 31.2 billion euros ($40 billion), part of a 130-billion-euro rescue granted earlier this year.
In exchange, Athens has pledged to implement a new series of radical austerity measures to cut its annual overspending.
Samaras’s government pushed a fresh batch of deeply unpopular cuts through parliament earlier this month.
Greece’s public creditors have decided to give Greece an extra two years, until 2016, to balance the books.
Greece’s private creditors have written off more than 100 billion euros in debt, and the IMF has urged the ECB to accept this solution.
But both the central bank and Germany have so far held out against making any similar move, saying it would violate EU mandates against bankrolling individual countries.
German Chancellor Angela Merkel has said she is “against this debt write-off and I want to find another solution”.