European finance ministers eased the terms on emergency aid forGreece, declaring after three years of false starts that Europe hasfound the formula for nursing the debt-stricken country back tohealth.

In the latest bid to keep the 17-nation euro intact, theministers cut the rates on bailout loans, suspended interestpayments for a decade, gave Greece more time to repay andengineered a Greek bond buyback. The country was also cleared toreceive a 34.4 billion-euro ($44.7 billion) loan installment inDecember. Greek bonds rose.

“This has been a very difficult deal,” Luxembourg Prime MinisterJean-Claude Juncker told reporters in Brussels after chairing a13-hour meeting that ended early today. “All initiatives decidedupon today will bring Greece's public debt clearly back on asustainable path.”

After 240 billion euros in loan pledges and the biggestwrite-down of privately held debt failed to turn Greece around, thecreditor governments led by Germany proclaimed the latest fix justas they grappled with swelling financing needs in Cyprus and apotential aid request by Spain, the fourth-largest euroeconomy.

In Athens, Prime Minister Antonis Samaras went on nationaltelevision after midnight to celebrate a “new day” for Europe'smost debt-ridden country. While the financing pact rewarded thegovernment's budget cuts and steps to overhaul the economy, Greecewill have to deliver on its commitments to earn each payout.

Gains made by the euro in the wake of the deal evaporated asinvestors asked how it will work. The currency was down 0.2 percentto $1.2950 at 12:50 p.m. in Brussels. Doubters questioned whetherGreece can stomach further economic discipline and whether the bondbuyback will generate enough savings. A shortfall would putoutright debt relief, anathema to northern creditor countries, backon the agenda.

“This leaves some uncertainty over the deal,” said ChristianSchulz, an economist at Berenberg Bank in London. Below-targetproceeds from the buyback “could again raise the discussion aboutan official sector debt write-down.”

Euro-area finance ministers sold the accord, blessed by theInternational Monetary Fund and European Central Bank, as amilestone in fighting the debt crisis, much as the first two Greekloan packages were once touted as solutions.

Bond Holdings

The ECB chipped in by steering profits from its Greek bondholdings back into the rescue program. National governments willfunnel their share of the profits to Greece's bailout account,getting around rules that bar the politically autonomous centralbank from directly lending to the state.

“I very much welcome the decisions taken by the ministers offinance,” ECB President Mario Draghi said. “They will certainlyreduce the uncertainty and strengthen confidence in Europe and inGreece.”

The batch of measures will help pare Greece's debt from 190percent of gross domestic product in 2014 to 124 percent of GDP in2020, a target set by the IMF as its condition for continuing tofund a third of the Greek program. One IMF concession was to raisethat target from 120 percent.

“These are solid commitments that should help Greece to recoverenough and regain access to markets as planned if it takes reformmeasures to improve its competitiveness,” IMF Managing DirectorChristine Lagarde said.

Greek 10-year bonds advanced, pushing the yield down 19 basispoints to 16.32 percent. It took four crisis meetings to seal theaccord, starting with a Nov. 12 decision to give Greece two extrayears, until 2016, to cut its budget deficit — an admission thatthe austerity-first prescription for solving the crisis isstrangling the Greek economy.

Scraping together the money to fill the resulting financial holewhile simultaneously slicing the debt was a math exercise withpolitical overtones. From the start, Germany, the dominant countryin the crisis management, ruled out forgiving any of Greece'spublicly held debt.

Debt relief would be legally questionable, German FinanceMinister Wolfgang Schaeuble said. It would also be politicallytoxic for Chancellor Angela Merkel, running for a third term nextyear on the promise that Greece won't cost German taxpayers anadditional cent.

Greece's Economy

With Greece's economy shrinking unceasingly since the thirdquarter of 2008, the IMF had called for further concessions by theEuropean creditors, doubting that Greece would generate enoughoutput, tax revenue or asset-sale receipts to slash the debt.

“We didn't discuss a debt cut,” Schaeuble said after themeeting. “It's out of the question.” Finland and the Netherlands,also with top credit ratings, balked at debt relief as well,dismissing warnings by the IMF and some ECB officials thatwriteoffs might be the only way out.

“Finland's conditions were fulfilled,” Finance Minister JuttaUrpilainen said. “New loans won't be granted to Greece.”

Still, lower bailout rates, the interest-payment suspension andthe delay of Greece's final repayment deadline until the 2040s willleave taxpayers in the northern creditor countries withsmaller-than-planned profits from lending to Greece.

Parliaments in Germany, Finland and the Netherlands haveinsisted on approving the accord, with Dec. 13 set as the deadlinefor a formal decision to unlock the next Greek aid tranche. FinalIMF endorsement hinges on Greece completing the bond buyback.

In addition, the ministers vowed “further measures andassistance” — such as another cut in bailout rates and an increasein European infrastructure subsidies — once Greece posts anoperating budget surplus. French Finance Minister Pierre Moscovicisaid the possible future concessions were couched in “constructiveambiguity,” a hint that the debt- relief debate may flare backup.

To make the package palatable for bailout-weary creditorparliaments, unprecedented controls were built into how Greecespends the money. An account devoted to debt servicing wasstrengthened and the payout of future aid installments was keyed tothe Greek government delivering on economic pledges.

“Euro-zone countries have put their money where their mouth is,”said Carsten Brzeski, an economist at ING Group NV in Brussels.“However, it is clearly not a carte blanche for Greece but rather avery tight leash.”

The disbursement of 9.3 billion euros in the first quarter of2013, for example, is tied to experts from the European Union, ECBand IMF certifying that the Greek government met a January deadlinefor carrying out a tax reform.

“The big challenge now is to implement the decisions,” GreekFinance Minister Yannis Stournaras said. “Greece has hugepotential.”

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