Draft deal
July 21, 2011
Eurozone leaders released a draft agreement at their summit in Brussels on Thursday, suggesting that Greece should receive loans at a lower interest rate of 3.5 percent, with a longer period until they mature.
"We have decided to lengthen the maturity of [eurozone] loans to Greece to the maximum extent possible from the current 7.5 years to a minimum of 15 years," the draft said.
The document also detailed plans to reduce the interest rate on these loans to around 3.5 percent. Currently Athens is paying between 4.5 and 5.8 percent interest on its international aid. The EU leaders also expressed their willingness - as was widely expected - to furnish Greece with a second set of emergency loans.
"We agree to support a new program for Greece and to provide an additional amount of up to (figure yet to be determined). This program will be designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece."
Greece has already received 110 billion euros ($156 billion) in emergency loans, and estimates suggest that the second rescue package would be of a similar, if not slightly larger amount.
The document described Greece's situation as "uniquely grave," saying it therefore called for such an "exceptional solution."
Extra teeth for EFSF fund
The draft also detailed plans to increase the flexibility and usability of the umbrella fund set up by eurozone countries in the wake of the problems in Greece and later Ireland and Portugal, known as the European Financial Stability Facility (EFSF).
For the first time, this rainy-day fund will be empowered to lend to states on a precautionary basis instead of waiting until market funding is no longer possible, and to recapitalize banks by virtue of lending money to relevant countries - even if these countries are not already part of an existing 'bailout' plan.
If confirmed, this measure would also permit the fund to finance Greek banks where necessary, and to buy up sovereign Greek bonds from traders, thus lightening the debt burden for the government in Athens.
No definitive word on private sector involvement
The possible involvement of the private sector in any second Greece rescue had been one of the main bones of contention in the run-up to this summit, and the initial draft did not spell out a clear position on the matter.
German Chancellor Angela Merkel has led the push for involving investors, banks and speculators in any second rescue, but encountered severe resistance - especially from the head of the eurozone's group of 17 national finance ministers, Jean Claude Juncker.
"You can never exclude such a possibility, but everything should be done to avoid it," Juncker said ahead of the summit.
With a credit default looming, and European leaders apparently unwilling to face this at present, finalizing a Greek rescue was the minimum target for the Brussels summit.
"I believe we'll be able to seal a new rescue package for Greece," Chancellor Merkel said on arrival in Brussels earlier on Thursday. "This is an important signal. We want to tackle the root of the problem. We must also improve debt sustainability and competitiveness. These are the two reasons why some countries in the eurozone have problems."
Prior to the summit, Merkel held a lengthy working dinner with her French counterpart Nicolas Sarkozy and the president of the European Central Bank, Jean-Claude Trichet. Merkel's stance towards the Greek issue had clashed with both these key figures, and the meeting seemingly laid a crucial foundation for Thursday's summit in Brussels.
Author: Mark Hallam (AFP, dpa, Reuters)
Editor: Susan Houlton