Euro zone finance ministers have released €35 billion from the second bailout package for debt-ridden Greece shortly after the Government in Athens reached a landmark deal with private creditors on a bond swap, which will halve its debts to around €107 billion.
The finance ministers of the 17 nations using the euro, in a conference call on Friday afternoon, welcomed the pact by private sector holders of Greek sovereign bonds to write-down up to 53.5 per cent of their claims in nominal terms by exchanging their bonds for new ones with less value, longer maturity and lower interest rate. In real terms, they may face losses up to 74 per cent.
The ministers were “quite encouraged” by the high level of participation by banks, insurances, funds and other private investors in restructuring Greece’s debts, Mr Jean-Claude Juncker, Luxembourg’s Prime Minister and Chairman of the euro group, said after the conference call.
They shared the view that Greece fulfilled all the conditions set by the European Union and the International Monetary Fund (IMF) to receive the second €130-billion bailout package.
Mr Juncker said the ministers decided to release €30 billion from the package to finance the debt write-down while another€5.5 billion was disbursed to meet the outstanding interest payments.
After Greece took steps to implement a new round of tough austerity measures and far-reaching economic reforms in return for the assistance from the EU and the IMF, the EU leaders at their summit in Brussels 12 days ago gave their final approval to release the second bailout package.
Debt restructuring
The finance ministers were waiting for the Greek Government to complete its negotiations with private creditors on the biggest restructuring of government debt in history.
A decision on releasing the entire bailout package will be taken by the finance ministers at their meeting early next week, Mr Juncker said in a press statement.
Greece will also receive €24.4 billion left in the first financial rescue package of €110 billion, which was offered by the EU and the IMF in May 2010.
German Finance Minister, Mr Wolfgang Schaeuble, said the “successful” restructuring of Greek debts will stabilise the entire euro zone.
Debt write-down
He told journalists in Berlin after the conference call that in his view there is no danger that some of the other heavily indebted euro zone nations will need a similar “haircut” in the future. The situation in Greece is quite unique and therefore a debt write-down became necessary, he said.
Mr Schaeuble warned against high expectations that by slashing Greece’s debts, its two-year-old debt crisis will be solved. “It is a mistake to believe that the Greek debt crisis has been solved completely,” he said.
The IMF has not so far made public its share of the second bailout for Greece, but Mr Schaeuble said its Managing Director, Ms Madame Christine Lagarde, has taken a decision on the level of its assistance.
Mr Schaeuble said he expected the IMF to make a “substantial contribution’’.
Bond-swap
The European Commission, executive arm of the EU, hailed the outcome of the bond-swap as “successful’’.
Mr Olli Rehn, EU commissioner for economic and monetary affairs, said he was pleased with the large positive turnout of the voluntary debt exchange in Greece.
Ms Madame Lagarde, who took part in the phone conference, said the debt swap deal was an important step that will dramatically reduce Greece’s medium-term financing needs and contribute to debt sustainability.
The EU and the IMF are hoping that the debt write-down and the second bailout will help Greece to reduce its debt level from the present 160 per cent of the GDP to a sustainable 120.5 per cent of the GDP by 2020 so that it can raise funds from the capital markets.
According to the estimates of the Greek Government, private investors holding Greek bonds worth about €152 billion, out of a total of securities valued at €177 billion which are under Greek jurisdiction, signed up to participate in the debt swap before a deadline set by the government expired on Thursday night.
It represented participation by 85.8 per cent of the bond-holders, but fell short of the Government’s goal of at least 95 per cent participation. The Greek Government said it intended to force more bond-holders to participate in the debt write-down.