BRUSSELS Eurozone finance ministers sealed a 130 billion ($172 billion) bailout for Greece yesterday to avert a chaotic default in March after persuading private bondholders to take greater losses and Athens to commit to deep cuts.
After 13 hours of talks, ministers finalised measures to cut Greeces debt to 120,5% of gross domestic product by 2020, a fraction above the target, to secure its second rescue in less than two years and meet a bond repayment next month.
By agreeing the European Central Bank would distribute its profits from bond buying and private bondholders would take more losses, the ministers reduced the debt to a point that should secure funding from the International Monetary Fund (IMF) and help shore up the 17-country currency bloc.
But the austerity measures wrought from Greece are widely unpopular among the population and may hold difficulties for a country which is due to hold an election in April. Further protests could test politicians commitment to cuts to wages, pensions and jobs.
We have reached a far reaching agreement on Greeces new programme and private sector involvement that would lead to a significant debt reduction for Greece . . . to secure Greeces future in the euro area, Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, told a news conference.
The euro jumped almost half a cent, reversing earlier losses, after the bailout was agreed. But some economists say there are still questions over whether Greece can pay off even a reduced debt burden.
A return to economic growth could take as much as a decade, a prospect that brought thousands of Greeks onto the streets to protest against austerity measures Sunday. The cuts will deepen its five-year recession, hurting government revenues.
A report prepared by experts from the European Union, European Central Bank and IMF said Greece would need extra relief to cut its debts near to the official debt target given the worsening state of its economy.
If Athens did not follow through on economic reforms and savings to make its economy more competitive, its debt could hit 160% by 2020, said the report, obtained by Reuters.
Given the risks, the Greek programme may thus remain accident-prone, with questions about sustainability hanging over it, the nine-page confidential report said.
The accord will enable Athens to launch a bond swap with private investors to help put it on a more stable financial footing and keep it inside the eurozone.
Around 100 billion of debt will be written off as banks and insurers swop bonds they hold for longer-dated securities that pay a lower coupon.