Optimism Ahead of Second Greek Bailout Meeting

National Bank of Greece
National Bank of Greece

Brussels-    Global markets are trading higher on Monday ahead of a key meeting in Brussels Monday afternoon between 17 Euro zone finance ministers, the European Central Bank (ECB), and the IMF to approve a second bailout package for Greece valued at 130 billion euros ($172 billion). 

New measures passed last week in Greece’s parliament established 3.3 billion euros in cuts to pensions, salaries, defense spending, and health care along with added tax increases. The new measures were approved in parliament despite sudden movements of protest and violence on the streets of Athens.

Euro zone finance ministers are widely expected to work out a new agreement over a second bailout package for Greece to restructure the country’s large debts.

Greece’s first bailout of 110 billion euros in 2010 fell short of expectations. The Greek government collapsed in 2011 following  a decision from ex-Prime Minister George Papandreou to hold a national referendum on the Euro zone bailout package. Papandreou was quickly replaced by Lucas Papademos, a technocrat who plans to lead Greece until elections in April.

Greece has a looming 14.5 billion euro repayment of maturing debt on its bonds which is due on March 20th.

The second Greek bailout package would allow for a 100 billion write down of debt from private lenders who hold Greek government bonds. The write down allows for a 70% bond swap in exchange for cash and longer term bonds which are expected to mature in 30 years.  EU Ministers are hoping to get the swap transactions done by March 9th.

Reuters reports that the 130 billion euro second  bailout package will contain 30 billion euros in “sweeteners” to get the private sector to sign up to the debt swap, and 23 billion will go to recapitalize Greek banks. Another 35 billion will permit Greece to finance the buying back of the bonds, and 5.7 billion will be used to pay off the interest accrued on the bonds being traded in.

Greece is being asked by EU officials to reduce their debts from 160% of GDP (current level) to 120% by 2020.

One of the key challenges that Greece faces is the implementation of the newly ratified EU austerity measures amid an uneasy social and political environment in Greece that is still trying to clean up from riots last week.

On Sunday in Spain thousands of Spaniards protested against cuts and reforms made to the Spanish labor market.

The threat of social unrest and labor strikes will continue to loom in countries like Greece and Spain where tough austerity measures are being imposed despite facing high unemployment and increased taxes.

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