Brussels, 22/07/2011 (Agence Europe) - On Friday 22 July, most political leaders welcomed the results of the special eurozone summit on Thursday that finalised the details of the second Greek bailout and paved the way for an extension of the EFSF bailout fund (see EUROPE 10424). Analysing the details of the deal, particularly the involvement of the private sector in the Greek bailout, the financial markets were up slightly on Friday after shooting up on Thursday afternoon. The ISDA (international body of derivatives players) said that this private involvement would not lead to the payment of premiums on insurance taken out against a Greek default. The rating agency Fitch, however, said it viewed the Greek bond deal as a selective default.
Greece. “The lowering of the interest rates and the extension of the maturities of the EU loans for Greece will substantially improve the country's debt sustainability and refinancing profile. The offer for a voluntary private sector involvement is an important contribution in this respect”, commented EU Economic and Monetary Affairs Commissioner Olli Rehn. Greek Finance Minister Evangelos Venizelos said that the summit had made a gigantic leap forwards that would help Greece meet its financial requirements and protect its banks on the long-term, adding that the deal set an upper limit on the country's debt. He warned Greeks that there must be no letting up in the austerity drive.
On behalf of the EPP Group at the European Parliament, French MEP Joseph Daul said that the reduction in the interest rates on loans to Greece, Ireland and Portugal to around 3.5% (and the extension of the loans to between 15 and 30 years) would make a substantial contribution to growth and jobs. The Party of European Socialists (PES) says that it has been calling for a reduction in the interest rates and an extension of the maturity dates since 2010. The chair of the EP's economic and monetary affairs committee, British ALDE MEP Sharon Bowles, said that the European bailout loans would now be based on the real costs. “I have long campaigned against profiteering from the countries in the rescue programmes, which has also made the loans unsustainable”, she said.
Bailout fund. Olli Rehn commented: “The EFSF and ESM are given the necessary instruments and flexibility to effectively and efficiently ensure euro-area financial stability against market pressures. This is an important reinforcement of the fundaments of the euro-area governance structures.” Bowles said: “The decision to allow the European Financial Stability Facility to purchase in the secondary market is welcome”, but the fund would have to be much bigger, at least €1,000 billion. Welcoming the plans for greater EFSF flexibility, co-chair of the Greens at the EP, Rebecca Harms of Germany, regrets that it is an intergovernmental structure.
Economic governance. Daul called for finalisation as soon as possible of the talks between the Council of Ministers and the European Parliament about reform of the Stability Pact and governance details. The leader of the PES, Poul Nyrup Rasmussen of Denmark, said that the EU17 deal lacked a long-term framework for jobs and growth and a special summit should be held to discuss these matters. Bowles said that “a sovereign default, selective or not, is never good news and we must do whatever it takes to avoid a repetition of the current situation. Now, more than ever, we acutely need further reforms of our macroeconomic governance framework to strengthen the long-term credibility of the euro” and work to ensure the Polish Presidency and all other bodies can reach final agreement on reform of the Stability and Growth Pact.
Co-leader of the Greens at the EP, French MEP Daniel Cohn-Bendit, said the summit's decisions went in the right direction because they are a step towards financial federalism and this move should now be pursued and a genuine EU investment plan introduced to ensure recovery of the economies of struggling countries through ecological investment. A bailout and austerity policy will not be enough and will be unfair if it is not accompanied by genuine prospects for the countries in question, he added.
Private sector. The Institute of International Finance (IIF), the world association of financial institutions, offers a menu of options that should allow 90% of the private sector exposed to the Greek debt to contribute to the cost of the second rescue package. This will provide financing to Greece of €54 billion to mid-2014 and a total of €135 billion to the end of 2020. Four possibilities will be offered: - three options for Greek bond exchange, varying according to whether or not there is a discount, the maturity of the new bonds and/or the interest rate applied; - rolling over Greek bonds due to mature by 2014 into 30-year instruments. According to the IIF, Greece's stock of debt, (€350 billion, or more than 150% of GDP) will be reduced by €13.5 billion through the bond exchange programme. Added to these operations is involvement of investors in a debt buy-back programme, amounting to €12.6 billion which institutional creditors will finance through the EFSF. “With this offer, the global investor community is stepping forward in recognition of the unique challenges facing Greece. The removal of financing uncertainties will allow Greece to focus on the key elements of the reform program itself - further fiscal adjustment, revenue enhancement, privatization, and other structural reforms”, said IIF Managing Director Charles Dallara.
According to the Federation of French Banks (FBF), which are the most exposed to Greek debt, the agreement on the new rescue plan for Greece shows the commitment of European leaders to ensuring stability in the eurozone. The “important innovation”, which is the possibility of the EFSF buying Greek debt on the secondary market, “bears witness to the solidarity of the euro area”. The various options available to the participation of the private sector in the second Greek rescue corresponds with “the situations of the various private players” and gives Greece “the timescales needed and satisfactory conditions”, the FBF says, highlighting the “one-off, never to be repeated nature of the private sector involvement in such an operation”. “In these conditions, involvement by financial investors as a whole is, exceptionally, possible and desirable”, the FBF states. (M.B./transl.fl/rt)