International Lenders Agree on Greece Bailout
Third time is a charm – after meeting twice in the last weeks Eurozone finance ministers and the International Monetary Fund (IMF) finally reached consensus today on a deal meant to overhaul Greece’s bailout programme and deliver the long awaited €34.4 billion (£27.9 billion) aid package. The international lenders agreed on a series of measures to relieve Greece of billions of euros in debt. These measures include reducing the interest rates on the bailout loans, suspending the rate payments for a decade, adopting a Greek bond buying plan and giving Greece more time to repay its loans.
“This has been a very difficult deal,” Luxembourg Prime Minister Jean-Claude Juncker told reporters in Brussels. “All initiatives decided upon today will bring Greece’s public debt clearly back on a sustainable path.”
The IMF was convinced to loosen the debt target required of Greece from 124 percent to 120 percent of GDP by 2020. Christine Lagarde, the managing director of the IMF, agreed on the compromise only after securing a commitment to get the debt level “substantially below” 110 percent of GDP in 2022. “It’s been hard work,” she said regarding the 13-hour long negotiations, which ended early in the morning.
Greek Prime Minister Antonis Samaras welcomed the deal today, saying “a new day begins for all Greeks”. The next instalment of cash is expected to be received on 13 December and will keep the country afloat for the rest of this year and the beginning of 2013. Subsequent bailout funds will only be granted given that the country is implementing the reforms it has agreed and voted upon.
!m[Eurozone Finance Minister Engineer a New Debt Reduction Programme ](/uploads/story/902/thumbs/pic1_inline.png)The European Central Bank (ECB) will also contribute to the Greek rescue by forfeiting profits from its Greek bond holdings and injecting them back into the rescue programme. “I very much welcome the decisions taken by the ministers of finance,” Mario Draghi, president of the ECB, said today as quoted by Bloomberg. “They will certainly reduce the uncertainty and strengthen confidence in Europe and in Greece.”
**Cyprus and Spain**
After having reached an agreement over Greece’s debt reduction programme, international lenders will now have to engineer a bailout package for Cyprus, which already agreed last week to receive rescue funds. Discussions between the Mediterranean island and its lenders have been halted for now in anticipation of a bank due-diligence exercise to be carried out in the next weeks. “There is convergence on the appropriate policy conditionality, but a final agreement including financing needs cannot be reached until there is more clarity on banks’ capital needs, following the due-diligence exercise,” a Eurozone official said, as quoted by Reuters.
Cyprus will be the fourth Eurozone country to receive sovereign rescue following Greece, Portugal and Ireland. The island has sought €17.5 billion (£14.2 billion) of financial aid or almost the equivalent of its annual GDP.
Spain, which was granted rescue funds to recapitalize its banks, has not yet applied for the ECB’s bond buying programme created by Mario Draghi.
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