EUROZONE leaders approved the €130bn (£109.3bn) Greek bailout package yesterday, after private sector investors were forced to take major losses on their holdings of the government’s debt.
Last week investors accounting for 85.8 per cent of the private sector’s holdings agreed to take a 53.5 per cent write-down, and an additional 9.9 per cent were forced to take the loss thanks to the government invoking collective action clauses.
That cut the country’s debt burden by over €100bn, which other governments claim puts Greece on the path to a sustainable level of debt – 120.5 per cent of GDP by 2020, compared with over 160 per cent now.
Greece will not get the cash immediately, as some other countries need to approve the transfer of funds.
However, economists believe slow growth – the country is in its fifth year of recession – may prevent the debt burden from being lowered.
“Greek public debt dynamics remain extremely challenging,” said Barclay’s Capital’s Fabio Fois.
“We think that further debt relief will be needed before Greece is able to return to the markets for medium- and long-term debt.”
The IMF’s contribution to the bailout has yet to be finalised, as it needs to agree that the debt levels will gradually come down, but it has announced it is considering contributing €28bn.
No agreement has yet been reached on the size of the “firewall” around Italy and Spain – the size of the European Stability Mechanism, the bailout fund which will be introduced in June, is set to be decided at the 30 March summit.
Meanwhile nine European leaders, including Italian prime minister Mario Monti, Germany’s finance minister Wolfgang Schauble and his French counterpart Francois Baroin, have called for a financial transactions tax to be introduced in a letter to Denmark’s Margrethe Vestager.
The nine have called on Denmark to use its rotating presidency of the EU to accelerate negotiations around the tax.
German opposition party the SDP is also calling for such a tax to be implemented – and is threatening to vote against the fiscal compact, potentially de-railing the latest attempt to rein in budget deficits across Europe and boost market confidence in the Eurozone currency area.