Brussels- After 13 hours of talks a new historic bailout deal valued at 130 billion euros ($172 billion) was reached with Greece and its creditors from the IMF, ECB, and EU in the early hours of Tuesday, making it the largest debt restructuring program accord ever.
France’s Finance Minister Francois Baroin discussed the issue of shared financial burden between Europe and Greece with reporters. “After 13 hours of negotiations, it’s a very good accord because it allows us to share the burden between Europe and Greece, between the public and private sectors” Baroin said.
Under the new bailout accord, Greece will be allowed to repay the 14.5 billion euros that is due by March 20th. If the bond swap moves forward, the 14.5 billion will be covered, meaning Athens will avoid defaulting on this payment.
The new bailout accord took a larger toll on Greece’s private bondholders who are facing a 53.5% write down on nominal face value along with a lower interest rate on new bonds, reducing Greece’s overall debt by 107 billion euros. The overall write down including coupon loss is closer to 75%. Earlier in October private creditors were asked to take a 50% write down of Greek bonds.
Greece’s debt target is now 120.5% of GDP compared to 160% of GDP at the current level.
A permanent fund of 500 billion euros or $660 billion called the European Stability Mechanism (ESM) is expected to emerge later in July to provide a firewall protection.
The European Central Bank (ECB) agreed to forfeit their profits of Greek bonds over the past 2 years and distribute them to national central banks for an eventual transfer to Athens.
ECB President Mario Draghi spoke positively about the new bailout accord. “We certainly welcome first and foremost the commitment of the Greek government to restore growth and stability. We also welcome the commitment of Euro zone countries for helping Greece to come back to the path of growth and job creation” Draghi told reporters.
Returning to the path of growth and job creation for Greece is expected to be a challenging goal at a critical time when the country reluctantly agreed to accept new austerity measures imposed by Euro zone countries that will make growth and job creation excruciating difficult. Furthermore, a write down of Greek debt by private bondholders and a forfeit of ECB’s bond holdings established a new precedent that other Euro zone countries with high levels of debt such as Portugal could use to request a write down of their own debt holdings.
The IMF plans to ratify bailout cash next month. IMF Managing Director Christine Lagarde said that the bailout will put Greece in a better position. “Significant progress has been made overnight that will put Greece in a better position to address the very ambitious program that it has negotiated over the last few weeks” Largarde told reporters following the bailout accord.