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Eurozone Summit: New Package For Greece

  • July 22nd, 2011
  • Posted by EUEditor

eu-money-ec.jpgThe Eurozone leaders have completed a new package of measures, 21.7.11, to calm the sovereign debt crisis, led by a new relief fund for Greece.

The heads of government of the 17 countries using the Euro currency, set up the fund of €109-billion (A$145-billion; xe.com, 22.7.22), at a long session, over seven hours, in Brussels.

It takes in, for the first time in the current round of crisis-averting agreements, a private sector component, €37-billion (A$49.25-billion).

The wisdom of causing banks to commit to the sovereign debt arrangements was argued-out before the actual decision-making session by Greece’s main credit holders, France and Germany.

See “Countries most exposed to Greek debt”, (BBC graph), http://www.bbc.co.uk/news/business-14239794, (22.7.11).

The German Chancellor, Angela Merkel, who has many constituents opposed to heavy pay-outs for Greece, initiated the demand for private-sector involvement.

The package sees very large relief for the Greek economy, with bond maturity periods extended from 15 out to 30 years, and interest rates down to 3.5%, against previous levels in the range of 5.5 to 7.5%.

That would be a challenge to private ratings agencies which assess risk on loans, amid talk that they might see the European action as a “partial default” on loans.

It was a point noted by the President of the European Commission, Jose Manuel Barroso, saying the summit had “endorsed the plan of reducing over-reliance on external credit ratings.”

The Chairman of the gathering, President of the European Council, Herman Van Rompuy, said it had defended the currency from a situation “threatening the stability of the Eurozone.”

The Greek Prime Minister, George Papandreou, under extreme pressure from opponents at home to austerity measures imposed by his government, said the package would mean, “not only the funding of a program but …the lightening of the burden on the Greek people.”

Greece, along with the other small economies, Ireland and Portugal, has been struggling since the 2008 global financial crisis, receiving an initial large bail-out in May last year.

Other aspects of the package were an interest rate reduction of 2% for Ireland, which has been receiving positive reports from European Union assessors on management of its relief strategy; an extension of the activities of the European Financial Stability Facility (EFSF), the mechanism designed last year for generating early warnings and coordination of responses to financial crisis.

It is intended to promote confidence in lending, to ease pressure on much larger countries, with large bond markets, notably Italy, and also Spain; and therefore to ward off “contagion”, and a crisis like the succession of bank failures in the United States three years ago.

Reference

BBC News, London, “Eurozone aghrees new 109b euros Greek bail-out”, 21.7.11.
http://www.bbc.co.uk/news/business-14239794, (22.7.11).

Council of the European Union, “Statement by the heads of state or government of the euro area and European Union institutions”, Brussels, 21.7.11.
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/123978.pdf, (23.7.11).

Mark Hallam (AFP, dpa, Reuters) and Susan Houlton, Deutsche Welle, Bonn, “EU set to offer low-interest loans for Greece”, 21.7.11.   
http://www.dw-world.de/dw/article/0,,15255131,00.html
, (22.7.11).

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