EURO ZONE LEADERS STRIKE DEAL WITH SECOND GREEK PACKAGE
Tert.am
09:24 27.10.11
Euro zone leaders struck a deal with private banks and insurers on
Thursday for them to accept a 50 percent loss on their Greek government
bonds under a plan to lower Greece’s debt burden and try to contain
the two-year-old euro zone crisis, Reuters reported.
The agreement was reached after more than eight hours of hard-nosed
negotiations involving bankers, heads of state, central bankers
and the International Monetary Fund and aims to draw a line under
spiraling debt problems that have threatened to unravel the European
single currency project.
Under the deal, the private sector agreed to voluntarily accept a
nominal 50 percent cut in its bond investments to reduce Greece’s
debt burden by 100 billion euros, cutting its debts to 120 percent
of GDP by 2020, from 160 percent now.
At the same time, the euro zone will offer “credit enhancements” or
sweetners to the private sector totaling 30 billion euros. The aim is
to complete negotiations on the package by the end of the year, so that
Greece has a full, second financial aid program in place before 2012.
The value of that package, EU sources said, would be 130 billion
euros – up from 109 billion euros when a deal was last struck in July,
an agreement that subsequently unraveled.
“The summit allowed us to adopt the components of a global response,
of an ambitious response, of a credible response to the crisis that
is sweeping across the euro zone,” French President Nicolas Sarkozy
told reporters afterwards.
As well as the deal on deeper private sector participation in Greece
– which emerged after Sarkozy and German Chancellor Angela Merkel
personally engaged in the negotiations with bankers – euro zone leaders
also agreed to scale up the European Financial Stability Facility,
their 440 billion euro ($600 billion) bailout fund set up last year.
The fund has already been used to provide help to Ireland, Portugal and
Greece, leaving around 290 billion euros available. Around 250 billion
of that will be leveraged 4-5 times, producing a headline figure of
around 1.0 trillion euros, which will be deployed in a variety of ways.
Leaders hope that will be enough to stave off any worsening of the
debt problems in Italy and Spain, the region’s third and fourth
largest economies respectively.
The EFSF will be leveraged in two ways, either by offering insurance,
or first-loss guarantees, to purchasers of euro zone debt in the
primary market, or via a special purpose investment vehicle that
will be set up in the coming weeks and which is aimed at attracting
investment from China and Brazil.
The methods could be combined, giving the EFSF greater flexibility,
the euro zone leaders said.
“The leverage could be up to one trillion (euros) under certain
assumptions about market conditions and investors’ responsiveness in
view of economic policies,” said Herman Van Rompuy, the president of
the European Council.
“There is nothing secret in all this, it is not easy to explain
but we are going to more with our available money, it is not that
spectacular. Banks have been doing this for centuries, it has been
their core business, with certain limits.”
From: Baghdasarian