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BBC News – Eurozone Greek bailout talks to begin in Brussels

February 20, 2012
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Eurozone finance ministers arriving in Brussels have expressed confidence that an agreement will be reached to secure a second bailout for Greece.

French Finance Minister Frederic Baroin said that all of the elements for a deal were in place.

But his Greek counterpart Evangelis Venizelos said haggling would go on “until the very last minute”.

Athens needs the 130bn euros (£110bn; $170bn) in order to avoid bankruptcy next month, when loans must be repaid.

Analysis

Greek ministers and European officials vividly describe the catastrophe if Greece defaults. “If there is a default,” said the German centre-right MEP Elmar Brok, “then there would be no pensions, no salaries at all. It would become a failed state.”

No-one pretends that default would be an easy option. There would be a run on the banks and, at the most elemental level, there would be the question of how soon a new drachma could be printed and distributed.

But those who oppose the new bailout package argue that Greece is not being saved from the fate of a failed state, but being pushed into one – and for years to come.

The rescue plan would also write off 100bn euros of debt, with private lenders accepting a 70% reduction in what Greece owes them.

In return, they would receive cash and new bonds, expected to mature in 30 years’ time.

It is the second time Greece has sought a bailout from international lenders.

As he arrived at the talks, Jean-Claude Juncker – prime minister of Luxembourg and chairman of the eurozone finance ministers group – said he hoped they would be “the final consultations”.

“The Greek side has fulfilled many of the conditions that we pressed for. I am of the opinion that today we have to deliver, because we don’t have any more time.”

German Finance Minister Wolfgang Schaeuble also said he was “optimistic” a deal would be reached, while Mr Baroin said he would plead for the deal.

“All the elements are in place… both with the bankers, private sector creditors, and public sector creditors, the states and central banks,” he told Europe 1 radio.

Elections ahead

Mr Venizelos said he now expected the “long period of uncertainty” to end.

“The Greek people send to Europe the message that they have made, and will make, the necessary sacrifices for our country to regain its position of equality within the European family,” he said in a finance ministry statement issued in Brussels on Monday.

How bond swaps work

  • Governments borrow money by selling bonds, promising to pay a lump sum in future and interest in the meantime
  • With a bond swap, the investors give up the original bonds in exchange for new ones with different payment terms
  • In the case of Greece, it is expected that the final payment will be half the original amount
  • When all the elements of the exchange are accounted for (including the discounting of future cash flows), the loss to investors is expected to be as much as 70%
  • Final repayment will be pushed further into the future, although investors will get some of their cash almost straight away

After five straight years of recession, Greece now has a debt greater than 160% of its Gross Domestic Product (GDP).

Eurozone leaders and the IMF said in October that Greek debt should be reduced to the more sustainable level of 120% of GDP by 2020.

Successive rounds of austerity measures, demanded by the EU, the International Monetary Fund (IMF) and the European Central Bank – Greece’s international creditors – have failed to restore growth and have provoked clashes between protesters and police.

The Greek government fell last year after ex-Prime Minister George Papandreou called for a referendum on the eurozone rescue package.

He was replaced by Mr Papademos, an unelected technocrat who is expected to lead Greece until parliamentary elections in April.

Measures passed by parliament last week set out 3.3bn euros’ worth of cuts to salaries and pensions, and health and defence spending.

Several thousand people protested in Athens on Sunday against further cuts agreed to by Mr Papademos’ cabinet on Saturday – but the numbers were far reduced from the tens of thousands who protested last week.

As she arrived in Brussels for the talks, IMF chief Christine Lagarde praised the work Greece had done so far to address the crisis.

“The people of Greece have made considerable efforts, now it is up to the other parties to continue the work, and the IMF is ready to work with them.”

US Treasury Secretary Timothy Geithner said the US was encouraging the IMF to support the bailout, but it is not clear how much the IMF will contribute.

Some eurozone finance ministers doubt Greece’s commitment to its spending pledges and want strong mechanisms to ensure its debts are paid.

It is not yet clear how the eurozone intends to keep the pressure on Greece to ensure it fulfils its commitments, says the BBC’s Europe editor, Gavin Hewitt.

And, he adds, there are doubts that even with the bailout Greece will be able to reduce its debt to a sustainable level.

Funds from elsewhere may need to be found. A first rescue fund of 110bn euros in 2010 was not enough to avert the crisis.

BBC News – Eurozone Greek bailout talks to begin in Brussels.

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