Bloomberg News

Euro Finance Chiefs Give Political Backing to Greek Plan

March 12, 2012

Greece is now in line to receive more than 100 billion euros in the next three years from the European Financial Stability Facility, the euro region’s temporary rescue fund. Photographer: Kostas Tsironis/Bloomberg

Greece is now in line to receive more than 100 billion euros in the next three years from the European Financial Stability Facility, the euro region’s temporary rescue fund. Photographer: Kostas Tsironis/Bloomberg

Euro-area finance ministers signed off on a second Greek bailout, clearing the way for the first payment from the 130 billion-euro package ($170 billion) to be made this month.

“The new Greek program is not only in its starting blocks, but has been politically adopted tonight by the euro group,” Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of 17 finance ministers, said in Brussels late yesterday. Euro finance officials will give a formal approval on March 14, a day before the International Monetary Fund board votes on its contribution.

Greece is now in line to receive more than 100 billion euros in the next three years from the European Financial Stability Facility, the euro region’s temporary rescue fund, starting with payments of 5.9 billion euros in March, 3.3 billion euros in April and 5.3 billion euros in May, EFSF Chief Executive Officer Klaus Regling said.

The agreement caps months of grueling negotiations between Greece, the IMF and euro-area authorities over the successor to an initial 2010 bailout that failed to halt the debt crisis. To win new the aid package, Greece had to sign on to deep budget cuts and complete the world’s largest-ever sovereign debt restructuring.

‘Fundamental Obligations’

“The situation has changed for Greece today and this will have an effect on the economic life of the country,” Greek Finance Minister Evangelos Venizelos told reporters. Greece has “fundamental obligations” and must continue to implement its austerity program, he said, adding that elections in Greece won’t interrupt the pace of budget measures.

The debt swap wipes more than 100 billion euros off Greece’s books and includes the use of collective action clauses to compel investor participation. Euro finance ministers agreed on March 9 that Greece had met the terms for bailout funding and released 35.5 billion euros in payments and interest to bondholders.

As a result of the swap, Greece’s debt is on track to fall to 117 percent of gross domestic product by 2020, creating a buffer as the country strives to meet its commitments, Juncker said. Greece’s future in the euro area is assured “whatever will happen,” he said.

Bank Recapitalization

The Greek rescue package means that the EFSF will be looking to financial markets more frequently as well as issuing bonds directly on a “non-cash” basis, Regling said. Last week, the fund issued 66 billion euros in bonds and bills without tapping the markets, comprised of 35 billion euros in European Central Bank collateral enhancements and 31 billion euros in accrued interest and debt swap sweeteners.

Going forward, the fund expects to disburse 48 billion euros on a non-cash basis for Greece’s bank recapitalization efforts. Venizelos said he expects his nation to receive a 25 billion-euro first tranche of bank-sector funds soon.

The rest of the funds headed for Greece will be raised from financial markets, Regling said. The fund also will continue to support ongoing rescue programs in Portugal and Ireland.

“We will from now on go frequently to the market. And next week alone we may go three times to issue short-term bills, to issue five-year bonds and possibly also issue 25- or 30-year bonds,” Regling said. “Given these amounts, the EFSF will be in the market from now on a very regular basis.”

To contact the reporters on this story: Rebecca Christie in Brussels at rchristie4@bloomberg.net; Marcus Bensasson in Brussels at mbensasson@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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