Greece’s immediate exit from the euro has been avoided.

After a 17-hour negotiating session that went through the night, the leaders of the 19 euro zone countries thrashed out a deal that will require Greek prime minister Alexis Tsipras to capitulate on virtually all of his anti-austerity demands.

The deal will hand Greece its third bailout package since 2010, when the debt crisis shut the country out of the debt markets. In a press conference early Monday morning in Brussels, German chancellor Angela Merkel said the deal was worth as much as €87-billion over three years.

“Trust has to be rebuilt, the Greek authorities have to take on responsibility for what they agreed,” she said shortly after the negotiating session ended at about 9 a.m. in Brussels. “It now hinges on step-by-step implementation of what we agreed.”

She added that “I think that trust can be regained.”

The agreement marks a dramatic reversal for both Germany and Greece. Germany’s finance minister, Wolfgang Schaueble, had been pushing for Greece’s suspension from the euro zone for five years. He had lost all trust in the Greek negotiating team months ago.

Mr. Tsipras’s radical left Syriza government was elected in January with a mandate to end austerity and bring down Greece’s debt. But Syriza got neither. Instead it will get more austerity and more debt in exchange for a bailout that will keep it in the euro zone and its banks alive. In the end, he had little negotiating leverage because about 80 per cent of Greeks want to keep the euro.

Jean-Claude Juncker, president of the European Commission, the executive arm of the European Union, said a Greek exit from the euro would not be tolerated even though most economists thought that there was at least a 50 per cent chance that “Grexit” would happen. “We would not accept any form of Grexit; there is no Grexit,” Mr. Juncker said.

The bailout appears to rob Greece of what little sovereignty it can lay claim to.

The central feature of the bailout is the transfer of €50-billion of Greek assets to a fund that will be monetized through privatizations and by managing those assets, from ports to utilities, to maximize their profits.

French president Francois Hollande, who had emerged as the main proponent of keeping Greece inside the euro zone, said the fund will be based in Greece and run by Greeks, with oversight from the creditors. “Greece did not want to abandon its sovereignty, very rightfully,” he said this morning.

Jeroen Dijsselbloem, president of the euro zone finance ministers group (known as the Eurogroup), said the fund will contribute €25-billion to the bank recapitalizations. The rest will be split between debt repayment and investments in the Greek economy by the Greek government.

The banks are in desperate need of help. They have been closed for two weeks and are running dangerously short of cash to dispense to their customers. Their daily withdrawals have been limited to €60. With a deal agreed, the European Central Bank is now expected to boost its emergency lifeline to the banks, though that may not come today.

The European stock markets rose strongly on the news of the Greek deal. The euro initially gained, then lost almost 1 per cent against the dollar as investors, apparently, weighed the odds of a rate rise in the United States.

The Greek deal will require the approval of the Greek parliament and the parliaments of many of the  other euro zone countries. Mr. Dijsselbloem said the parliamentary approvals should happen this week.

Speaking on BBC television, Taavi Roiva, the prime minister of Estonia, said that the approvals “will be hugely unpopular in most of our countries. This will not be easy for any of the parliaments.”

Greece will have to move quickly to pass new legislation to approve the reforms, from the value-added tax hikes to what Ms. Merkel called the “complete overhaul of the pension system”. The leaders said the Greek legislation must be in place by Wednesday night.

Mr. Tsipras, clearly exhausted, said this morning that “We fought the good fight. Now we have to focus on implementing reforms back home.”

But the pro-austerity deal will threatens to heat up the revolt inside Syriza, whose far-left wing is angered by Mr. Tsipras’s U-turn.

Greeks widely expect Mr. Tsipras to dump the Syriza rebels and perhaps form a new coalition government in an effort to ram through the austerity legislation. “We all think a major cabinet reshuffle is coming, with all anti-deal ministers to be replaced,” said Achilleas Kasimidis, a salesman at a technology company in Athens. “A national unity government would also be an option.”

ROME — The Globe and Mail
Published Monday, Jul. 13, 2015 2:51AM EDT
Last updated Monday, Jul. 13, 2015 8:00AM EDT