Bloomberg News

Euro Bailout Fund Gets Ministers’ Approval to Raise Money for Greek Swap

March 01, 2012

Luxembourg Prime Minister Jean-Claude Juncker. Photographer: Jock Fistick/Bloomberg

Luxembourg Prime Minister Jean-Claude Juncker. Photographer: Jock Fistick/Bloomberg

Euro-area finance ministers kept up pressure on Greece as they authorized the region’s bailout fund to raise money for a bond exchange, the first step in releasing funds from a 130 billion-euro ($173 billion) rescue package.

Greece has passed “all required legislation” and the ministers “note with satisfaction” the progress achieved, Luxembourg Prime Minister Jean-Claude Juncker said after chairing a meeting of the finance chiefs in Brussels yesterday before he joined a European Union summit. As a result, they gave the go-ahead to the European Financial Stability Facility to issue bonds to finance their role in the debt swap.

After the summit, Juncker said there was a back-up plan if the swap intended to ease the country’s financing load falls short. Speaking to reporters in Brussels after a European Union summit today, he declined to provide further details. “Yes, it exists,” he said, when asked, without saying more.

The progress toward wrapping up the second bailout for Greece came amid signs the crisis that has roiled the region since 2009 is easing. As leaders wrote a new budget rulebook, the European Central Bank pumped 1 trillion euros into the financial system, pushing the risk premium on Italian 10-year bonds compared to German securities to the lowest in six months. Yields on Italian two-year notes fell under 2 percent for the first time since October 2010.

Bond Swap

The bond exchange, part of a strategy drafted in October, imposes a loss of more than 70 percent on private investors. It needs to succeed for the EFSF to distribute the cash and for the rescue package to receive final approval, said Juncker.

He said the ministers were “confident” that the swap offer includes “sufficient attractive and unique features” to attract broad participation.

The euro-area ministers will check on results of the debt swap on March 9 as they move forward on the rescue program. On March 12, the ministers will meet in Brussels, in the same week that the IMF is slated to decide on its role in the program and in which the full package may be activated.

Speaking to lawmakers at the European Parliament in Brussels yesterday, Juncker said he expected the next aid payment to Greece by March 20 “at the latest,” the date of a bond payment of about 14.5 billion euros.

In addition to the bond-exchange financing, they also agreed on a backstop facility for the recapitalization of Greek banks. And they authorized the EFSF to implement a buyback scheme for Greek bonds used as collateral in monetary-policy operations.

‘Very Positive’

Greek finance minister Evangelos Venizelos called yesterday’s assessment of Greece’s progress “very positive.” Aiming to meet conditions for the bailout, Greek lawmakers approved cuts in pensions and health care in the early hours yesterday, a day after ratifying 3.2 billion euros of spending reductions.

Default insurance on Greek debt won’t be paid out as a result of the swap, the International Swaps & Derivatives Association ruled yesterday. Italian Prime Minister Mario Monti said Greece should complete the debt swap next week.

The euro officials meeting in Brussels “appreciated that the preliminary actions required have been done by Greece,” Monti told reporters. “We will verify next week the progress on the PSI and that should be positively solved.”

To contact the reporters on this story: Rebecca Christie in Brussels at; Josiane Kremer in Brussels at

To contact the editor responsible for this story: James Hertling at

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