Eurozone leaders yesterday struck a deal worth €159 billion to save Greece from bankruptcy, hoping to prevent its debt crisis from engulfing Europe.
“We reached agreement on a new assistance programme to fully cover the financing gap and to be financed by both the EU and the IMF,” EU President Herman Van Rompuy told reporters after an emergency debt summit in Brussels.
The private finance sector agreed to provide €50 billion of funding which will be added to €109 billion from European governments and the International Monetary Fund, according the summit’s final statement.
“This programme will be designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece,” it said.
“The financial sector has indicated its willingness to support Greece on a voluntary basis,” – a crucial point for how the agreement is viewed by markets, which could view the deal as an effective debt default by Greece.
The package “creates a sustainable path for Greece... a lightening of the burden on the Greek people,” said Greek Prime Minister George Papandreou. Greece has debts of €350 billion.
Prime Minister Lawrence Gonzi described the summit’s conclusions as a breakthrough that confirmed the strength of the euro despite the difficulties faced by Greece, Ireland and Portugal.
“I believe this is a breakthrough that sends a positive message to the financial markets and this will create stability,” Dr Gonzi said when asked whether this was a long-term solution.
Speaking at a video conference after the summit came to an end last night, Dr Gonzi said the second bailout package to Greece will not require Malta to fork out any more money since it will be provided under the European Financial Stability Facility.
The EFSF was set up last year after the first Greek bailout package – which was financed through bilateral loans – and eurozone countries support the €400 billion fund through financial guarantees.
Malta’s commitment to the fund is to guarantee almost €400 million.
Dr Gonzi said the summit underscored the importance of EU member states to achieve fiscal consolidation by reducing the deficit and controlling expenditure, something which his government was committed to.
European Central Bank chief Jean-Claude Trichet hailed the agreement as a “crucial” step and one which would not trigger a “credit event,” activating creditor loss insurance instruments. He declined to “prejudge” whether it would amount to a default.
To ease Greece’s debt repayments on its emergency loans, the summit agreed to extend them from 7.5 years to as much as 30 years in some cases, at a rate of 3.5 per cent.
“The only thing we’re asking for is the right to make deep changes in our country to make our country a viable one, one of growth and jobs creation,” said Mr Papandreou. “This is a European success, a European package.”
A breakthrough became possible after the eurozone’s two powerbrokers, German Chancellor Angela Merkel and French President Nicolas Sarkozy, reached a compromise just hours before the summit.
Leaders dropped the idea of a bank tax to help fund a second Greek bailout but kept German demands for private sector involvement, even at the risk of triggering a default.
There are concerns that any change to the terms of outstanding Greek sovereign bonds could prompt rating agencies to declare Athens in default, with potentially dramatic knock-on consequences.
The European Union and IMF’s €110 billion bailout of Greece last year has proved insufficient and, since then, Ireland and Portugal have received their own multi-billion-euro rescues. (additional reporting by Kurt Sansone)