Eurozone finance ministers have agreed to extend further bailout loans to Greece as well as debt relief, in what they call a “major breakthrough”.
After late-night talks in Brussels, the ministers agreed to unlock 10.3bn euros ($11.5bn; £7.8bn) in new loans.
The move came two days after the Greek parliament approved another round of spending cuts and tax increases demanded by international creditors.
The ministers also said debt relief would be eventually offered to Greece.
This had been a key demand from the International Monetary Fund (IMF), which says public debt is unsustainable at current levels of about 180% of Greece’s gross domestic product.
The deal was announced after 11 hours of talks between the 19 eurozone ministers – known as the Eurogroup.
“We achieved a major breakthrough on Greece which enables us to enter a new phase in the Greek financial assistance programme,” Eurogroup President Jeroen Dijsselbloem told reporters early on Wednesday.
He said a package of debt measures would be “phased in progressively”, adding that he was “glad to confirm” the IMF would now stay on board.
Poul M Thomsen, director of the IMF’s European Department, welcomed the recognition that Greek debt was unsustainable and relief was needed.
He warned, however, that the IMF board in Washington still had to agree to the fund’s participation. He also said that the extent of debt relief was still not clear.
The IMF and the Eurogroup have been at odds for months over the issue of reducing Greece’s debt.
The Greek parliament passed new budget cuts and tax rises at the weekend, in order to unblock much-needed aid to help meet the country’s debt repayments over the coming months.
The bill also created a state privatisation fund requested by eurozone finance ministers.
Opponents of the measures demonstrated outside parliament on Sunday.
The government, led by the leftist Syriza coalition, agreed to a third bailout worth €86bn (£67bn; $96bn) last year.