The leader of the finance ministers of the eurozone, Jean-Claude Juncker, said Tuesday morning that a rescue plan “unprecedented” of Greece had been agreed to ensure the future of the country and prevent it from sink into bankruptcy.
After 12 hours of negotiations, the Ministers meeting in Brussels reached an agreement on ways to cut Greek debt to 120.5% of GDP by 2020. This debt level is very close to the original target had been set by the donors of Greece, a debt equal to 120% of GDP. Greek debt is currently equal to 160% of GDP.
Agreements in principle were found on a reduced interest rate loans to be made to Greece and the involvement of national central banks in the euro area to a debt exchange.
Greece will receive public assistance than 130 billion euros and will benefit from a partial cancellation of debt held by private creditors, who agreed to undergo a discount of 53.5% on Greek debt. In total, the bailout is estimated at nearly 230 billion euros and will reduce debt by about 107 billion euros.
The country has to repay 14.5 billion euros by March 20. Without this new aid plan, he might suffer a default greater than that of Argentina 10 years ago.
The announcement of the agreement immediately boosted the euro: the single European currency, which was worth only $ 1.3185 to 2 h 40 GMT, rose to $ 1.3287 to 3 h 10 GMT before declining. Oil prices have also increased significantly, while Asian stock markets remained mixed on their side, just as European stock markets.
“Much remains to be done in the immediate future, to perform all necessary actions,” acknowledged the Greek prime minister, Lucas Papademos, however, calling the day “historic”. “And of course to complete all the planned reforms in the new Greek economic program,” he added.
For its part, the President of the European Central Bank, Mario Draghi, welcomed what he described as being a “good agreement”, while the Italian leader Mario Monti said he was a “good outcome for Greece, markets and the euro area”.
The IMF will decide in March
The Board of the IMF said Tuesday it will consider the second bailout of Greece in the second week of March. The IMF will then decide the amount of its contribution to the new plan of 130 billion euros, confirmed the CEO Christine Lagarde.
Assistance which has its counterpart
This financial solidarity of Europe to Greece, however, comes from harsh conditions.
First, Athens was forced to accept the implementation of drastic austerity measures. The Greek Parliament has indeed been forced to accept a program that provides a total of 3.3 billion euros in savings. He must urgently carry out more than two-thirds, or before reimbursement of March 20, before receiving any further aid.
Greece also had to agree to be under constant surveillance by the Working Group of the European Union to Greece, led by the German Horst Reichenbach, who had been set up to advise Athens on the implementation of reforms requested. This committee will have all the power to control the application of the economic program.
The Greek Parliament will also have a couple of months pass legislation that will enshrine in the Constitution, to ensure that EU funds will be primarily used to service debt. Greece will further establish an escrow account which will always contain enough to finance the debt service for the upcoming quarter. This is to prevent Athens, whose economy is stifled by the recession in five years, allocating EU aid to other budget items.