Eurozone approves new Greek bailout plan (Lead)

February 21st, 2012 - 4:59 pm ICT by IANS  

Brussels, Feb 21 (IANS) Eurozone finance ministers have ended months of uncertainty and averted an imminent debt default by Greece by approving a second bailout deal for the debt-laden country.

“After a meeting of at least 13 hours, we have reached a far-reaching agreement on Greece’s new program and private sector involvement (PSI) that will lead to a significant debt reduction for Greece,” Eurogroup chief Jean-Claude Juncker said at a press conference early Tuesday after a prolonged meeting of eurozone finance ministers.

The bailout plan, which is estimated to amount to 130 billion euros ($172 billion), doled out in tranches until 2014, was aimed at bringing down Greece’s debt-to-GDP ratio to 120.5 percent by 2020 from the current 160 percent, Juncker told reporters.

“Greece will launch a bond exchange offer in the coming days. And, given the balanced agreement reached with the creditor group led by the International Institute of Finance managing director (Charles Dallara) and the fact that the package delivers debt sustainability for Greece, we expect a high participation rate,” Xinhua quoted him as saying.

This second bailout package, designed by the troika of the International Monetary Fund (IMF), the European Union and the European Central Bank, will enable Greece to repay bonds totalling 14.5 billion euros ($19.2 billion) which come due March 20, avoiding a default and a potential exit from the European single currency zone.

Private sector holders of Greek debt were expected to accept a reduction of 53.5 percent on the face value of their bonds as part of a debt exchange that involved about 200 billion euros ($265 billion), Juncker said.

The real losses of private bondholders are expected to be deeper than the previous 70 percent, when they were offered a 50-percent haircut on their Greek bonds, analysts said.

The deal was struck hours after a report on Greece’s debt projections by experts from the troika put Athens’ ability to execute its rescue programme into question and called for urgent identification of other means to ease the debt burden.

The debt sustainability report delivered to ministers showed that, without further measures, Greek debt would only fall to 129 percent by 2020 rather than the 120 percent target seen as a sustainable by the IMF. In this case, Greece could need an additional 50 billion euros by 2020 on top of the 130 billion euros in new funds until 2014.

To further reduce the burden, eurozone finance ministers agreed to other measures on the back of the enhanced debt swap deal.

The eurozone countries would ease Greece’s debt burden by lowering the interest Greece has to pay for its first bailout program from the current 2 to 3 percentage points over market rates to 1.5 percentage points, Juncker said.

In the meantime, central banks of eurozone member states that hold Greek debt would return some of the profits the bonds would bring in the future to the Greek government.

“This will lower financing needs by 1.8 billion euros,” Juncker said.

The latest bailout deal has been widely welcomed. ECB President Mario Draghi told reporters after the meeting the deal was “a very good agreement”.

Greek Prime Minister Lucas Papademos, who was also present at the meeting, hailed the agreement.

“It’s no exaggeration to say that today is a historic day for the Greek economy,” he said after the meeting.

IMF chief Christine Lagarde welcomed the deal and praised the “great efforts” made by all sides. She said she would take the bailout plan to the board of the IMF in the second week of March for approval.

While applauding the agreement, EU economic and monetary affairs commissioner Olli Rehn also warned of Greece’s commitments to implement the promised reforms.

He said Greece’s compliance with the terms of the bailout deal would be ensured by “a separate account containing enough money to service its debt for three months”.

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