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Greece Gets New Bailout as U.S. Nears Brink
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All sides had to make concessions to reach a new agreement on a restructuring of Greece's debt, and new terms for loans to Ireland and Portugal. The agreement was reached after negotiations between France, Germany, the ECB, and eurozone countries with a declaration issued on July 21, 2011. The powers and financing of the European Financial Stability Facility (EFSF) were expanded to be the main mechanism for channeling EU funding to reduce the burden of Greece's debt. Germany will provide new funding and be open to additional commitments, something German chancellor Angela Merkel had resisted since the beginning of the crisis in 2010. Earlier funding had come with high interest rates and only when the situation had reached a crisis, with Germany insisting on the punitive rates and conditions as a way to discourage countries from taking advantage of cheap borrowing. In exchange for commitment of German funds Ms Merkel had insisted that banks and private creditors share in the losses. Private bondholders resisted but finally agreed to take a loss of 20% of principal on a small portion of the bonds. Their larger concession was to take lower interest rates and extend the maturities to 15 years and 30 years on new bonds which are guaranteed by the EU. The specific terms of the agreement are as follows: The EFSF and the IMF will lend Greece 109 billion euros over 3 years at 3.5%. Private creditors including German and French banks will "voluntarily" turn in their old bonds for new ones that mature over 15-30 year periods. These new bonds include 15 and 30 year Greek bonds with varying coupons. Some of the bonds would have a 20% discount on principal. EU leaders say the private sector contribution amounts to 37 billion euros through 2014 and 106 billion euros through 2019. Another part of the program is for the EFSF to buy back some of the Greek bonds on the secondary markets, which would mean Greece would now owe a smaller amount to the EFSF on these bonds. The EFSF will now have additional financial support from Germany and other EU countries and be authorized to provide aid to countries before a crisis situation arises. It would also have power to buy Greek bonds at prices on secondary markets to reduce the Greek debt burden. Ireland and Portugal are also assisted in the agreement. The interest rate for EU aid to Ireland and Portugal is taken down to 3.5%. Ireland is paying about 6% on the EU portion of its 67.5 billon euros bailout and efforts to reduce the rate were resisted earlier. The main theme behind these concessions and provisions is to give Greece, (and Ireland and Portugal) a chance to grow. High interest rates came under strong criticism because it only increased the size of the debt burden of these countries with a shrinking economy and high unemployment. The failure to come together behind a broad and sensible agreement with all parties making serious concessions, the EU, the ECB and the political leadership in these countries especially Greece, was undermining confidence in the euro and the eurozone itself. By mid-July Italy and Spain were feeling the effects of contagion in the financial markets, U.S. debt ceiling negotiations were unsettling global financial markets, the pressure was intense to come up with the workable agreement achieved on July 21, 2011.
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The first really workable agreement was finally reached in Brussels after a year of sharp differences between the ECB, EU leaders, Greece government and opposition parties, and leaders of France, Germany and other EU countries. Fears of contagion for Italy and Spain and a sense of the dangers to the EU and the Euro currency itself led to the agreement, with the EU governments coming up with the financial support which will be channelled through the European Financial Stability Facility. The debt ceiling crisis in the U.S. may have added to the urgency to reduce nervousness in the markets about a breakdown in EU governance along with that in the U.S.
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Actions taken for Ireland, Greece, Portugal and other countries facing debt problems.
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Debt Restructuring for Greece- 2010-2012
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Why Portugal is different from Greece in 2012-2013, and yet may find its debt unsustainable as the economy shrinks- the situation in 2012-2013
04/30/2010
Portugal is taking vigorous steps without social unrest, including spending cuts that will stabilize the deficit, labor reform, and increasing exports through trading links to Africa and Latin America. Portugal needs to borrow about 10 billion euros in 2012 and the ratings downgrade has hurt Portugal by raising rates on new borrowing to about 20%. The economy is expected to shrink by 3% in 2012.
Grouped Articles
Ratings Gag Is No Joking Matter
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New York Times 04/30/2010
Portugal Emerges From Recession
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A Brady Plan type solution for the debt crises in Greece, Ireland, Portugal and other EU countries.
05/18/2010
Grouped Articles
EU Dismisses IMF's Criticism On Greek Bailout
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'Contagion' and Other Euro Myths
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Antonis Samaras of Greece's New Democracy Party and the European Union programs for Greece
07/05/2011
Samaras says the tax increases will hurt the Greece economy and the shrinking Greek economy under the current program will lead to the failure of the E.U.'s program for Greece.
Grouped Articles
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George Papandreou's leadership during the Greece crisis- 2010-2011
06/15/2010
Papandreou has provided leadership on the issues facing Greece by walking the talk, with straight talk about the action needed, consulting economic experts in America who are in his inner circle, and working with European leaders for solutions. He has kept his profile modest and set a role model for his ministers and public officials.
Grouped Articles
George Papandreou Finds Balm for Greece Deficit
New York Times 06/15/2010
BusinessWeek 06/24/2010
At Impasse, Greek Leader Vows to Reset Cabinet
New York Times 06/15/2011
Greek Leader Faces Key Confidence Vote
Wall Street Journal 06/21/2011
Wall Street Journal 06/21/2011
New York Times 06/21/2011
Failure to stabilize the euro with the agreements reached by eurozone leaders including the July 2011 deal
07/13/2011
Experts suggest an approach that tackles the whole problem compared to the fragmented approach used so far based on dealing wiht the individual countries one at a time.The lack of agreement on shared sacrifice for bondholders, banks and eurozone governments.
Linked Articles
Greece Gets New Bailout as U.S. Nears Brink
Wall Street Journal 07/22/2011
Wall Street Journal 07/13/2011
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