Europe seals new Greek bailout
Updated: 2012-02-22 08:20
Luxembourg's Prime Minister Jean-Claude Juncker rubs his face during a news conference after a meeting of eurozone finance ministers at the EU Council building in Brussels on Tuesday. [Virginia May / Associated Press]
BRUSSELS - Eurozone finance ministers sealed a 130-billion-euro ($172 billion) bailout for Greece on Tuesday 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 finalized measures to cut Greece's debt to 120.5 percent 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 that 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 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 Greece's new program and private sector involvement that would lead to a significant debt reduction for Greece ... to secure Greece's future in the euro area," Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, said at 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.
PM 'very happy'
Greek Prime Minister Lucas Papademos pronounced himself "very happy" on Tuesday with the bailout plan.
"We're very happy," Papademos said after 14 hours of determined talks in Brussels that saw him shuttle between finance ministers and banks' negotiators, saying a debt write-down by private creditors expected to net 107 billion euros would "pave the way" for the 130 billion euros in loans from public partners.
Papademos, a former European Central Bank No 2 backed by European Union partners to lead an emergency coalition government in Athens, acknowledged that full delivery of the deal depends on Greece delivering on a string of conditions in "a timely and effective manner".
However, he maintained: "I'm convinced that the government after (an April general) election will also be committed to implement the program fully ... because it is in the interests of the Greek people."
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 on 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 International Monetary Fund 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 percent by 2020, the report said.