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Greece, euro zone agree four-month loan extension, avert crunch

Euro zone finance ministers agreed in principle on Friday to extend Greece’s financial rescue by four months, averting a potential cash crunch in March that could have forced the country out of the currency area.

The deal, to be ratified once Greece’s creditors are satisfied with a list of reforms it will submit next week, ends weeks of uncertainty since the election of a leftist-led government in Athens which pledged to reverse austerity.

“Tonight was a first step in this process of rebuilding trust,” Jeroen Dijsselbloem, chairman of the 19-nation Eurogroup, told a news conference. “We have established common ground again to reach agreement on this statement.”

The agreement, clinched after the third ministerial meeting in two weeks of acrimonious public exchanges, offers a breathing space for the new Greek government to try to negotiate longer-term debt relief with its official creditors.

But it also forced radical young Prime Minister Alexis Tsipras into a major climbdown since he had vowed to scrap the bailout, end cooperation with the “troika” of international lenders and roll back austerity.

European Union paymaster Germany, Greece’s biggest creditor, had demanded “significant improvements” in reform commitments by Athens before it would accept an extension of euro zone funding.

The two main combatants around the table put a radically different gloss on the result.

“Being in government is a date with reality, and reality is often not as nice as a dream,” German Finance Minister Wolfgang Schaeuble told reporters, stressing Athens would get no aid payments until its bailout program was properly completed.

“The Greeks certainly will have a difficult time to explain the deal to their voters,” the conservative veteran said.

Greek Finance Minister Yanis Varoufakis said the talks had shown elections could bring change to Europe. He insisted he had averted “recessionary measures” and said the government still hoped to raise the minimum wage and rehire some public sector workers.

“Nobody is going to ask us to impose upon our economy and society measures that we don’t agree with,” Varoufakis said.

The euro rebounded against the dollar and global equity markets surged to record closing highs while Greek government bond yields fell on optimism for a debt deal.

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