Local rally on back of Greek bailout
Austerity protest: Greece has reached agreement with eurozone partners on debt repayments, but austerity measures will remain. Photo: Reuters
SHARES in the region rallied and the dollar shifted higher after Greece reached a landmark deal to restructure its faltering debt bailout program.
The eurozone and the International Monetary Fund thrashed out a series of compromises in Brussels, unlocking a long-delayed €43.7 billion ($A54.2 billion) payment and granting significant debt relief for decades to come.
The measures include reducing interest rates on Greece's bailout loans to levels so low that other eurozone countries will likely incur losses on them, but will allow Athens significant breathing space to reduce its debt levels below current projections.
The agreement provided the Australian market with a shot of confidence, pushing shares to a two-week high, while the Australian dollar shifted closer to $US1.05, reaching a two-month high of $US1.0492.
Economist Stephen Koukoulas said the Australian dollar could continue to rise to $US1.08 in the next few months.
"Certainly we've had commodity prices no longer falling, particularly iron ore and others have actually moved well above the lows that we saw in October,'' he said. ''We are getting job creation and unemployment is still below 5.5 per cent. There is evidence that housing construction is turning up.''
But Commonwealth Bank analyst Alex Stanley said the deal was just the latest of many and Greece had a long way to go before reaching sustainable debt levels.
''[The] forecast numbers appear to imply austerity, a significant surplus and a significant growth in GDP all at the same time - a combination which has proved very difficult to achieve up until now,'' he said.
Mr Stanley said the deal did provide meaningful aid to Greece, mostly in the form of reduced and deferred interest costs. And while the deal falls just short of a direct debt write-down, parts of the plan ''seemed to be a write-down in disguise''.
''The European leaders continue to duck the question of what happens if [more realistically, when] Greece needs to default on some of the money it owes to the European Official sector,'' he said.
The original bailout rewrite agreed for Greece in March was meant to reduce Greece's debt to 120 per cent of gross domestic product by 2020.
The IMF is pushing for a so-called ''haircut'' or write-down of debt by eurozone 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 AAA-rated states, though, have said they would ''not exclude'' the possibility of a write-down of debt from 2015 onwards.
Greece has been waiting since June for a loan instalment of €31.2 billion, part of a €130-billion rescue granted earlier this year.
In exchange, Athens has pledged to implement a new series of radical austerity measures to cut its annual overspending.
"It's been hard work," said IMF chief Christine Lagarde of the negotiations.
Greece, where the eurozone's debt crisis erupted in late 2009, is the currency area's most heavily indebted country, despite a big ''haircut'' this year on privately-held bonds.
Its economy has shrunk by nearly 25 per cent in five years.
The key question remains whether Greek debt can become sustainable without eurozone governments having to write off some of the loans they have made to Athens.
Jean-Claude Juncker, who chaired the meeting as head of the group of eurozone finance ministers, said: "This has been a very difficult deal."