The Bill to amend the Government Borrowing and Granting of Loans to the Hellenic Republic Act would reduce interest rates and extend maturities to give Greece the needed refinancing.

It will take Greece longer to pay backs than had been anticipated

Introducing the debate in second reading, Finance Minister Tonio Fenech said that while the June agreement extended the grace period from three to four years, it was not enough and therefore modifications were made to assist the Greek government by reducing interest rates with 150 base points (1.5 per cent).

Admitting that no government was happy to implement such measures, the minister said he could understand the sentiment expressed by several people as to why Malta should contribute towards the Greek bailout. The consequences of not doing so would have grave consequences on Malta because if the European economy went into a recession, factories, employment and investment would be jeopardised.

Earlier, Mr Fenech said that in conformity with a decision taken by the European Council in May 2010, the Maltese government had agreed to lend Greece €74.54 million (in bilateral lending) which was being paid in tranches.

The agreement aimed at ensuring economic sustainability in Greece, where it had to reduce its debt to 120 per cent of the GDP by 2020. Such rate would be manageable even though it would still be high, he said.

The first bailout consisted of €80 billion. At present, six tranches were paid, amounting to a total of €52 billion. The second programme was being implemented through the European Financial Stability Facility (EFSF).

Dr Fenech said that the House had to approve the amendments made to the Act because the second programme required an additional burden for Greece to reduce its debts.

For the second package to be successful one could not expect all finances to be made through the EFSF and thus there was an agreement to include private sector involvement. The private sector had first lost 50 per cent; this had also increased to 58 per cent. There was also a decrease in interest rates. In real terms this meant that through the haircut procedure, the private sector would lose around 77 per cent of what it had originally loaned to Greece.

The private sector was ready to accept such a haircut but at first it had requested governments and central banks to have haircuts as well. The governments could not accept such haircuts because they had to lend money to Greece as a result of an emergency that could lead to default.

Meanwhile, governments agreed to lower their interest rates to enable Greece to keep up with its repayment programme. They also provided guarantees through the EFSF.

Mr Fenech said that stocks by the European Central Bank were not utilised. It would therefore make profit and distribute them to national central banks. As a result, the Maltese government would not be giving out money from its own pocket.

It would take Greece longer to pay back the debt than had been anticipated. The amendments being presented included margins of interest being reduced by 250 basis points. It also extended the period of repayment; this could now not exceed 10 years and repayments could be paid in up to 15 years. The period of maturation of loans was thus being lengthened.

In February the members of the eurozone had agreed to help Greece through a second bailout which would see the country reducing its debt and becoming more stable and sustainable. This required the country to adopt an economic adjustment programme which consisted of austerity measures, reforms in the employment, energy, business, environment and transport sectors and access and liberalization of markets.

During the October summit a number of conditions were presented to the Greek government. These needed to be satisfied before the second programme would be approved. After reviewing these prior actions, these criteria were found to have been satisfied. Home Affairs Minister Carm Mifsud Bonnici said the European Council had agreed to reduce interest rates and extend maturities to Greece.

It was also agreed to draft a new programme for Greece that included the participation of the private sector. A second bailout was needed because the Greek economy was still facing difficulties.

The amendments would mean that Malta would receive what it had loaned to Greece at a later stage. However, by then Greece would have strengthened its economic position and thus it would be more probable for Malta to receive the amounts owed to it.

EU governments had agreed with the private sector in last February on a second bailout to enable Greece to build a stable and sustainable economy. The European Council did not permit a default by its members, as this would send a negative sign to other markets.

Dr Mifsud Bonnici said it was in Malta’s interests for Greece to stimulate economic growth. It was in this scenario in which the Economic and Financial Affairs Council (Ecofin) agreed on a €130-billion-package. Private creditors absorbed more losses to avoid a catastrophic default.

The minister advocated the approval of the proposed amendments in the interest of solidarity as well as in the interests of Malta.

The ratification process was legal which the House could scrutinise. The Prime Minister also informed the House of the summits he attended. This procedure never stopped and the opposition could always ask questions. The government never tried to close the opposition’s mouth.

Dr Mifsud Bonnici augured Greece improved its situation with the implementation of the much-needed measures.

Also taking part in the debate were Opposition MPs Alfred Sant and Charles Mangion.

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