Greece gets €6.8bn but ‘must keep its promise’

Greece secured a €6.8bn lifeline from the eurozone last night, but was told it must keep its promises on cutting public sector jobs and other reforms in order to get all the cash.

The deal, which spares Greece defaulting on debt that falls due in August, will see Athens drip fed support under close watch from its international creditors to drive through unpopular reforms.

Eurozone finance ministers agreed to make staggered payments starting with a €2.5bn instalment in July, said officials close to the talks.

The agreement foresees a further payment of €500m in October.

Central banks in the euro system will contribute €1.5bn in July and €500m in October, the officials said. The IMF will give €1.8bn in August.

“That’s the way it will be done,” said one of the officials.

After more than three years on life support from Europe, Greece’s governing coalition is split over how to meet the demands of its bailout programme, putting the country centre stage and threatening to reignite the eurozone debt crisis.

But a week of talks, culminating in promises to reform the public sector, appeared to convince international lenders — the IMF, the European Commission and the European Central Bank — that Greece is committed to rebuilding its economy.

There have also been warning shots to Portugal to ensure that its economic reforms stay on track despite political stress.

“If we get proof that Greece is living up to everything, then Greece will get its money,” Luxembourg finance minister Luc Frieden told reporters as he arrived at the meeting.

In Athens, thousands of Greek municipal workers and state school teachers took to the streets to protest against the public sector layoffs that the government has promised in exchange for the funds.

In a cautiously worded statement, the troika said it believed Greece can meet targets on reforming its economy. “Important progress continues to be made”, the statement said, cautioning of an ‘uncertain’ outlook.

Greek officials said on Sunday the troika agreed to give Athens more time to make staff cuts and that 25,000 state workers must be moved into a so-called mobility scheme by the end of 2013 — to be transferred or laid off within a year.

Olli Rehn, the EU’s commissioner in charge of economic affairs, confirmed on Friday that the next tranche may be paid in instalments, which would be conditional on Athens meeting milestones on Greek reforms, such as cutting state jobs.

Eurozone finance ministers, accompanied by ECB president Mario Draghi and IMF head Christine Lagarde, also delivered a firm message to Portugal that last week’s political instability must not derail its plan to return to the debt market in 2014.

Officials are concerned that more upheaval could upset Lisbon’s efforts to leave a €78bn bailout programme as the country’s bond yields topped 8% last week, a level seen as making new borrowing unaffordable.

Vitor Gaspar, the architect of Portugal’s austerity drive under the bailout, resigned last week, citing a lack of public support for cuts into welfare benefits and tax hikes.

Unemployment is at a record high of nearly 18%.

Hoping to end a rift that threatened to bring down the government, Portugal’s prime minister promoted the head of the junior coalition party to be his deputy.

But the events are being followed by unease by the ECB.

Draghi told lawmakers in the European Parliament that Portugal should not “unravel the progress” that it had made.

It has also worried some economists in Ireland, which is due to return to normal market borrowing and exit its bailout programme in coming months.

“The problems of Portugal and Greece keep on coming back to haunt us,” said John FitzGerald of the Economic and Social Research Institute.

“With the crisis not put to bed, we are walking in a minefield.”