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Euro zone approves extension of Greek bailout

The euro zone's finance ministers approved Greece's new bailout plan Tuesday, after Athens submitted reform proposals at the 11th hour.

A European Union and a Greek national flag flutter in front of the Parthenon temple in Athens February 11, 2015.
Alkis Konstantinidis | Reuters

The approval will pave the way for the final instalment in Greece's bailout to be paid, and allow it and its official creditors to proceed with discussions for a new program over the next four months.

The Eurogroup's green light sent Greek government bond yields sharply lower. By 14:30 GMT the Greek 10-year yielded 8.675 percent, down from 9.568 percent on Monday. The Athens stocks exchange, meanwhile, was trading 8.8 percent higher.

Earlier Tuesday Greece's Finance Minister Yanis Varoufakis sent a list of reform proposals to the euro zone at around midnight on Monday, just making a deadline set by its international creditors.

The measures included plans to combat tax evasion and corruption, reform tax policy, consolidate pension funds and eliminate incentives for early retirement. In addition, Athens promised to review and control public spending, and made commitments not to roll back privatizations that have been completed.

The International Monetary Fund (IMF), another of Greece's major creditors, gave its approval to the plan in a letter.

IMF Managing Director Chrisitne Lagarde wrote in a letter to the Eurogroup that the Greek plan, "covers the broad topics that should be on the new Government's agenda." But she added that there were no "clear assurances" on certain key areas, like comprehensive pension and sales tax reform.

Also giving its qualified welcome to the plan was the European Central Bank. In a letter to the Eurogroup, ECB president Mario Draghi urged "the Greek authorities to act swiftly to stabilize the payment culture and refrain from any unilateral action to the contrary."

European Union Economics Commissioner Pierre Moscovici told reporters Tuesday that individual euro zone member states now had to give the plan the green light, with Germany, the biggest critic of the new Greek government's anti-bailout stance, set to debate the issue on Friday.

Since its election at the start of the year, Greece's new left-wing, anti-austerity coalition government has clashed with the rest of the euro zone about renegotiating the country's bailout. This latest package of reforms proposed by Athens is a significant compromise on its early hardline stance.

Just in time

While euro zone members Ireland and Portugal have exited bailouts, Greece still requires financial aid. To date, its bailout has totaled 240 billion euros ($272 billion) and a number of crucial funding deadlines loom.

- CNBC's Holly Ellyatt contributed to this report.