The European Commission has in principle approved an €85 billion ($95 billion) in fresh aid to bankrupt Greece after Athens agreed to the strict conditions set by its international lenders.
The agreement was reached on Tuesday after night-long talks, officials said, saving the country from financial collapse and raising the prospect of Greece honouring a major debt repayment next week.
After a 23-hour marathon session in a central Athens hotel that began on Monday morning, Greek officials today announced that the two sides have agreed on the terms of the three-year agreement, although a couple of minor issues are still being ironed out.
"Finally, we have white smoke," a finance ministry official said. "An agreement has been reached."
The agreement obligates Greece to set a target of producing a primary budget surplus starting 2016, graduating from a primary budget deficit not exceeding 0.25 per cent of GDP in 2015, followed by surpluses of 0.5 per cent in 2016, 1.75 per cent in 2017, and 3.5 per cent in 2018.
The Greek economy is expected to shrink between 2.1 and 2.3 per cent in 2015, contract by 0.5 per cent in 2016, and return to 2.3 per cent growth in 2017.
Also, Athens should tighten laws on banks' non-performing assets in order to avoid bank failures and set up an independent sovereign wealth fund to raise €50 billion, three-quarters of which would be used to recapitalise banks and decrease debt, deregulate the market for natural gas, scrap tax breaks for farmers who now receive subsidised fuel, tighten regulation of repayment system for individuals owing back taxes to the state, gradually increase in advance tax collection by raising rates and increase solidarity tax for those earning €50,000-€100,000 euros a year to 6 per cent from 4 per cent, before the bailout aid is disbursed.
Finance minister Euclid Tsakalotos said, "two or three small issues" were pending.
Greek shares rose, with the banking index surging 6 per cent, while two-year bond yields fell more than 4 percentage points.
The deal reached by creditor institutions still needs political approval from euro zone member countries, especially the major economies.
European Commission President Jean-Claude Juncker would hold talks later on Tuesday with German Chancellor Angela Merkel and French President Francois Hollande, commission spokeswoman Annika Breidhardt said in Brussels.
"The institutions and the Greek authorities achieved an agreement in principle on a technical basis. Now as a next step, a political assessment will be made."
An agreement would close a painful chapter of aid talks for Greece, which fought against austerity terms demanded by creditors for much of the year before relenting under the threat of being bounced out of the euro zone.