EUROPEAN leaders have agreed on a ?130 billion ($A160 billion) bailout for the Greek economy, averting the immediate threat of bankruptcy and of Greece being forced out of the euro zone.
EUROPEAN leaders have agreed on a ?130 billion ($A161 billion) bailout for the collapsing Greek economy, averting the immediate threat of default on its massive loans.
But the deal is conditional on Greece implementing further austerity measures, which will bring more hardship to a nation already traumatised by spending cuts and recession.
The deal, concluded after marathon overnight talks in Brussels, includes a major write-down of debt owed by Greece to private investors, who have accepted a "haircut" of more than ?100 billion or 53.5 per cent of their holdings.
It also includes provisions to ensure loan money be "ring-fenced" so it can be clawed back if Greece fails to make further savage spending cuts.
The deal is double the size of the last bailout in 2010. Without it Greece, facing debt repayments of ?14.5 billion by March 20, would have gone bankrupt.
Greek Prime Minister Lucas Papademos hailed the breakthrough, calling it a "historic day" for Greece. Finance Minister Evangelos Venizelos said the agreement would allay fears that Greece would be forced out of the euro zone.
But its terms will mean decades of hardship for Greeks, a third of whom are already in poverty as the economy reels from massive cuts to government spending, jobs and wages. Greece has 48 per cent youth unemployment and its suicide rate has doubled since 2008.
The deal must survive further hurdles over the next month as it faces ratification by individual European Union parliaments and a stormy response from protesting Greeks, who have been rioting in the streets of Athens as the country endures a fifth year of recession.
Under the agreement, the Greek government has agreed to an extra ?325 million in spending cuts. Mr Papademos is expected to push through emergency legislation today that will further slash pensions and wages. In longer-term measures, 150,000 civil servants will be axed and labour laws ditched.
In Athens, residents were cynical about the outcome. Spyros Papadopoulos, an employee at a cosmetics company, said: "Default is inevitable and all these sacrifices will be for nothing."
"Our economy has collapsed and everybody knows it," said Katerina Freri, a civil servant at the Finance Ministry until her retirement this year.
"Officially we have not gone bankrupt because it is in nobody's interest for us to go bankrupt and in Europe they fear the domino effect. But, unofficially, bankrupt is what we are, and at some point they will say it and there will be chaos here."
Euro zone leaders fear that if Greece defaults on its debt it would trigger a chain reaction of economic collapses across the EU and destroy the euro.
Dutch Finance Minister Jan Kees De Jager suggested that the troika overseeing the new bailout deal - the International Monetary Fund, the European Central Bank and the European Commission - permanently supervise taxation and spending in Athens.
Austrian Finance Minister Maria Fekter ruled out the idea. "We cannot usurp the budget sovereignty of parliaments ... But one can very well link the aid one gives to conditions."
The deal brings the total funds committed to save Greece, Ireland and Portugal to at least ?386 billion. But the latest bailout is unlikely to be enough to save Greece. A report by the troika's own analysts warned that Greek debt could reach an astronomical 160 per cent of its gross domestic product by 2020 if its recession deepens and structural reforms are not made.
With GUARDIAN
Frequently Asked Questions about this Article…
What did European leaders agree in the €130 billion Greece bailout?
European leaders agreed a €130 billion (about A$160–161 billion) bailout to avert Greece’s immediate default and a forced exit from the euro. The deal is conditional on further austerity, includes a major debt write-down for private investors and measures to make loan money ring‑fenced and recoverable if Greece fails to meet the conditions.
What is the "haircut" for private investors and how big was it in the Greece rescue?
The "haircut" means private holders of Greek debt agreed to accept losses on their holdings. In this deal private investors accepted a write‑down of more than €100 billion — about 53.5% of their Greek debt exposure — which reduces the face value they will be repaid.
How might the Greece bailout affect everyday investors and bondholders?
Everyday investors holding Greek government bonds or funds exposed to them faced direct losses because of the private creditor haircut. More broadly, the bailout can increase market volatility and raise contagion concerns across European sovereign bonds, since euro‑zone leaders feared a default could trigger a domino effect across the EU.
What austerity measures and reforms does the bailout require from Greece?
The deal requires Greece to implement further austerity, including an extra €325 million in immediate spending cuts, emergency legislation to slash pensions and wages, plans to cut about 150,000 civil servant jobs and changes to labour laws. Officials warned these terms could mean decades of hardship for many Greeks.
What does it mean that bailout loan money will be "ring‑fenced"?
Ring‑fenced loan money is protected so it can be tracked and, if necessary, clawed back if Greece fails to deliver the required austerity and reforms. That provision is intended to ensure funds are used for debt servicing and agreed measures rather than being diverted elsewhere.
Who oversees the bailout and what is the "troika"?
The bailout oversight is expected to involve the troika — the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission. Dutch Finance Minister Jan Kees De Jager suggested permanent supervision of taxation and spending by the troika, though some officials said they would not usurp national parliamentary budget sovereignty.
Does the €130 billion bailout guarantee Greece will stay in the euro?
The bailout averted the immediate threat of Greece being forced out of the euro and, according to Greek leaders, allayed fears of an exit. However, it is not a guarantee: the deal must be ratified by individual EU parliaments, implemented under tough conditions, and faces political and social opposition at home.
What are the longer‑term debt risks investors should watch after the bailout?
Troika analysts warned the bailout may not be enough: Greek debt could reach about 160% of GDP by 2020 if the recession deepens and structural reforms lag. Investors should watch Greece’s economic growth, implementation of reforms, political stability and ratification risks — all factors that influence future sovereign‑debt outcomes and market confidence.
Call 1300 880 160
Start a chat
Schedule a call
