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| Michael Noonan, Irish minister of finance, arrving in Brussels, Monday 26, 2012 |
Eurozone finance ministers and the IMF on Tuesday
morning agreed a new deal for Greece involving a lower interest rate and a
reduced debt to GDP (gross domestic product) target by 2022.
At a meeting in Brussels, the Troika represented
by finance ministers of the 17 country Eurozone and the heads of the
International Monetary Fund and European Central Bank agreed to cut Greece's
debt to a level below 124% of GDP by 2020. To meet IMF concerns that Greece's
debt must fall even more to be considered "sustainable," ministers agreed to
bring the public debt to under 110% of GDP in 2022.
Loans advanced under the first bailout will be
cut 100 basis points (1%), to just 50 points above EURIBOR interbank rates,
cutting about €2bn off Greek debt levels, or 2% of GDP by 2020. In
addition, both the bilateral loans and assistance provided under a second Greek
bailout, which comes from the Eurozone’s €440bn bailout fund, will have their
maturities deferred another 15 years. Interest payments on the second bailout
will also be deferred by 10 years.
The deal will enable Greece to receive loan
payments of about €44bn to be paid in three installments in early 2013, tied to
Greece's implementation of agreed reform measures.
Jean-Claude Juncker,
head of the Eurogroup of Eurozone finance ministers said it had “been a very
difficult deal.”
"The ECB welcomes the deal," Mario Draghi,
European Central Bank president told reporters early Tuesday. "It will reduce
uncertainty, and increase confidence in Europe."
Greece's debt currently exceeds more than 170% of
GDP, a level that Greek officials have said would fall to 144% in 2020 without
further measures. The IMF has said the 2020 level needs to fall below 120% if
Greece is to get its economy back on a sustainable basis.
The IMF accounts for about of the €245.7bn in
bailout money that has so offerred to Athens. However, it can't continue funding
Greece if there is no realistic chance that it can eventually finance itself
again.
Christine Lagarde, managing director of the
IMF, made the following statement at the conclusion of the Eurogroup meeting in
Brussels today:
“I welcome the initiatives agreed today by the
Eurogroup aimed at further supporting Greece’s economic reform program and
making a substantial contribution to the sustainability of its debt. This
builds on the significant efforts by the Greek government to carry forward
its fiscal and structural reform agenda.
“The initiatives include Greek debt buybacks,
return of Securities Market Programme (SMP) profits to Greece, reduction of
Greek Loan Facility (GLF) interest rates, significant extension of GLF and
European Financial Stability Facility (EFSF) maturities, and the deferral of
EFSF interest rate payments.
“Taken together, these measures will help to
bring back Greece’s debt ratio to a sustainable path and facilitate a
gradual return to market financing. The debt ratio is expected to decrease
to 124% of GDP by 2020 through significant upfront debt reduction measures
of 20% of GDP. In addition, I welcome the commitment by European partners to
bring back Greece's debt to substantially below 110% of GDP by 2022,
conditional on full implementation of the program by Greece. This represents
a major debt reduction for Greece relative to its current debt trajectory.
“Once progress has been made on specifying
and delivering on the commitments made today, in particular implementation
of the debt buybacks, I would be in a position to recommend to the IMF
executive board the completion of the first review of Greece’s program.”
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