SYDNEY (MarketWatch) — After a long wait for a final agreement, European finance ministers approved the terms of a fresh aid package for Greece on Tuesday and the country agreed the terms of a deal with its private debt holders.

Following a marathon meeting that went into the early hours of Tuesday morning Brussels time, European finance ministers and other top European officials said they stand ready to provide up to 130 billion euros ($171.9 billion) of extra financial aid to Greece until 2014

The Eurogroup said they had the “expectation that the International Monetary Fund will make a significant contribution” to the new Greek aid program.

IMF Managing Director Christine Lagarde said that she would take the proposal to the IMF board in the second week of March.

Bankers pocket three times pre-tax profits

Under Tuesday’s agreement, European member states will lower interest rates on their loans to Greece retroactively to a margin of 150 basis points from 200 basis points.

Additionally “national central banks will pass any profits on Greek government bond holdings in their investment portfolios directly back to Greece,” said Michael Turner, fixed-income strategist at RBC Capital Markets.

“The official Eurogroup statement does not contain too many surprises,” he said.

The Eurogroup said that Greece’s debt-to-GDP ratio is expected to fall to 120.5% by 2020, from around 160% in 2011.

The measures “will preserve the financial stability of Greece,” Luxembourg Prime Minister Jean-Claude Juncker, who chairs meetings of the euro-zone finance ministers, said at a news conference after the meeting.

Greece has also reached a deal with private holders of Greek government bonds, which has been endorsed by the Eurogroup, the country’s institutional lenders, and the steering committee of the private creditor-investor committee for Greece, the committee said Tuesday.

Private-sector bond holders will take a haircut of more than 53% on around €200 billion worth of privately held Greek government debt.

“Today’s announcement is a major step towards implementing the debt exchange,” the private creditors’ committee said in its own statement.

Details are now to be submitted to the full committee and the steering committee recommended that private investors “carefully consider” the proposed offer.

The committee said that it views the Greek offer as “broadly consistent” with the voluntary agreement reached last October — at which time it was expected that private-sector bond holders would take a 50% writedown on the value of their Greek government debt holdings.

The Eurogroup statement, in turn, said that the group “looks forward to a high participation of private creditors in the debt exchange, which should deliver a significant positive contribution to Greece’s debt sustainability.”

Greece needed to agree to terms on fresh funds with its institutional lenders and reach a deal with its private bondholders in order to head off default, as it faces a €14.5 billion bond redemption on March 20.

The euro EURUSD, +0.04% jumped after the reports, climbing to $1.3290 in minutes, up from $1.3243 on Monday, though it later eased back to $1.3270.

Greece had already received €110 billion in funds from its European partners and the International Monetary Fund when its first bailout was agreed in May 2010.

Euro-zone leaders had agreed in principle to the second Greek bailout last October but Greece’s inability to meet fiscal targets amid a deepening recession caused international creditors to demand a further round of unpopular austerity measures and reforms before they would finally agree to a deal for additional aid.

The Eurogroup members said Tuesday that the success of the new aid program “hinges critically on its thorough implementation by Greece” and that there would be a significant strengthening of the European Commission task force in Greece.

Greece will also put in place a mechanism “that allows better tracing and monitoring of the official borrowing and internally generated funds destined to service Greece’s debt,” the European finance ministers said, referring to a special segregated account that would be monitored by European and International Monetary Fund officials.