New Greek bailout unveiled to contain debt crisis
Eurozone leaders on Thursday...
Eurozone leaders on Thursday night hammered out a second bailout package for debt-stricken Greece in a desperate effort to contain the 18-month-long debt crisis in the single-currency bloc of 17 nations, according to Xinhua.
Athens will receive a second rescue fund worth 109 billion euros (157 billion U.S. dollars), on top of the 110 billion euros that it secured last May and has so far been proved insufficient.
The leaders, after eight-hour-long discussion, also noted at the one-day emergency summit in Brussels that the net contribution of the private sector, on a voluntary basis, was estimated at 37 billion euros for the next three years.
President of the European Council Herman Van Rompuy said at the press conference that the banks had committed on Thursday to support Greece on a voluntary basis through a menu of options, while stressing that "private sector involvement will be limited to Greece and Greece only."
European Central Bank President Jean-Claude Trichet also said at another press conference that the new Greek bailout would not trigger a "credit event" despite the participation of Greece`s private creditors.
However, analysts still fear that the "voluntary" participation from the private sector such as banks, insurers and investors could cause Greece to be declared at least in partial default by credit-rating agencies.
In fact, German Chancellor Angela Merkel and French President Nicolas Sarkozy had reached an agreement on the eve of the summit, willing to allow Athens default temporarily so as to lighten its debts.
Eurozone leaders then agreed in a statement that Greece should need an exceptional and unique solution, while Van Rompuy insisted that these measures were necessary to stop the crisis from spreading.
"This threat has to be contained, otherwise the situation could have led to a serious loss of confidence in our common currency and could even have jeopardized the ongoing economic recovery in Europe and the world," he said.
The euro, currently used as a single currency by more than 300 million people in 17 eurozone countries, is facing the biggest crisis since its introduction in 1999, with its contagion threatening larger economies such as Italy and Spain.
Fears that Greece`s crisis will spread to bigger economies in the region have kept markets on edge since early July, with yields on Italian and Spanish government bonds reaching eurozone record highs.
The leaders also agreed to lengthen the maturity of future EFSF loans to Greece from the current 7.5 years to a minimum of 15 years and up to 30 years, as well as lower the future lending rates from 4.5 percent to 3.5 percent.
The EFSF`s lower interest rates and extended maturity for Greece will also be applied for Portugal and Ireland, the other two debt-stricken nations, according to the statement.
Greek Prime Minister George Papandreou said the new bailout would enable the country to reduce its debt by around 26 billion euros by the end of 2014.
Greece has been making major economic reforms plus an austerity program as it struggles with a national debt topping 340 billion euros.
Eurozone leaders at the summit welcomed these measures as "unprecedented but necessary efforts to bring the Greek economy back on a sustainable growth path."
Notably, the leaders also agreed to give a range of new tools to the European Financial Stability Facility (EFSF) as well as the future permanent bailout fund European Stability Mechanism (ESM) after 2013, in the hope of easing the pressures on Greece and other vulnerable governments.
According to the summit statement, the EFSF and the ESM will be allowed for the first time to use its rescue fund to make precautionary loans, recapitalize banks and intervene in the secondary bond markets.
But it has made it clear that buying back bonds of struggling eurozone governments on the open market should be on the basis of an analysis by the European Central Bank and a decision by mutual agreement of eurozone nations.
A buy-back program should allow Greece to cheaply erase billions of debts, but many analysts agree that it is an unsustainable approach.
The leaders also agreed to improve the euro zone`s governance and crisis management, with certain proposals coming out in October.
The emergency summit on Thursday was the 10th summit in 18 months where European leaders had tried to save Greece from collapse as well as the euro.
The last-minute deal for Greece also came as a big relief to many top leaders and EU civil servants in terms of saving further talks and not ruining their vacation plans in August.
Norwegian Prime Minister Jens Stoltenberg said on Thursday that the latest rescue package for Greece is important but it does not not help to resolve the fundamental debt problems in Greece and other countries hit by the debt crisis in the euro region.
"The problems are not over, but this is an important and positive contribution to ease the situation of Greece and reduce the risk of the crisis spreading," said the Norwegian prime minister after an agreement on the issue was reached in Brussels.