Euro zone seals second Greek bailout worth 130 b euros

Wednesday, 22 February 2012 00:02 - - {{hitsCtrl.values.hits}}

Reuters: Euro zone finance ministers approved on Tuesday a second bailout for debt-laden Greece that will resolve Athens’ immediate repayment needs but seems unlikely to revive the nation’s shattered economy.

After a marathon 12 hours of talks through the night, euro zone officials said ministers had agreed measures to cut Greece’s debt to around 121 percent of gross domestic product by 2020, close to their original target of 120, after negotiators for private bondholders offered to accept a bigger loss to help plug the funding gap.

Agreement on a 130-billion-euro rescue package with strict conditions attached will help draw a line under months of uncertainty that has shaken the currency bloc, and avert an imminent bankruptcy.

“The financial volume (of the Greek package) is 130 billion euros and debt-to-GDP (will be) 121 percent. Now it’s down to work on the statement,” one official involved in the negotiations told Reuters. Another confirmed the two figures.

The euro jumped almost half a cent, reversing earlier losses, after Reuters reported a deal had been struck.

A report prepared for ministers by EU, European Central Bank and IMF experts, obtained exclusively by Reuters, said Greece would need extra relief to cut its debts near to the official debt target 2020 given the ever-worsening state of its economy.

If Athens did not follow through on economic reforms and savings, its debt could hit 160 percent by that date.

“Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it,” the 9-page confidential report said, highlighting the fact that Greece’s problems are far from over.

The accord will enable Greece to launch a bond swap with private investors to help reduce and restructure Athens’ vast debts, put it on a more stable financial footing and keep it inside the 17-country euro zone.

Greece will have around 100 billion euros of debt written off as banks and insurers will swap bonds they hold for longer-dated securities that pay a lower coupon.

Private sector holders of Greek debt are expected to take losses of 53.5 percent or more on the nominal value of their bonds as part of a debt exchange that will reduce Greece’s debts by around 100 billion euros.