Second Greek Bailout Worth €130 Billion

21 Feb

Euro zone finance ministers have agreed and approved a second bailout for Greece. This will resolve the immediate repayment needs but there are still grave concerns over growth or the potential of future growth in the Greek economy, to reverse their current recessionary cycle.

The talks through last night, have lead to Eurozone officials to agreed measures to cut Greece’s debt to around 120.5 % of GDP (Gross Domestic Product) by 2020. This is close to their original target of 120%, after private bondholders accepted a bigger loss, so meeting the shortfall in the funding gap.

Cristian Baitg | Photographer’s Choice | Getty Images

This euro rescue package will help avoid imminent bankruptcy for Greece, with the hope that it will passify the fear of uncertainty in the markets, at least in the short term. I am negative on the outcome as this deal was needed as Greece failed to meet the terms of the first bail out package and personally, I do not see where growth will occur to avoid the need for a third bail out package.

The euro jumped almost half a cent, reversing earlier losses, after Reuters reported a deal had been struck.

European Union, European Central Bank and IMF experts, obtained exclusively by Reuters, said Greece would need extra relief to cut its debts near to the official debt target 2020 given the ever-worsening state of its economy. This highlights the fact that Greece’s problems are far from over.


“Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it.” 

The accord will enable Greece to launch a bond swap with private investors to help reduce and restructure huge amounts od debt. This will allow it a more stable financial base and keep it inside the Eurozone.

Greece will have around 100 billion euros of debt written off, as banks and insurers will swap bonds they hold for longer-dated securities that pay a lower coupon.

Private sector holders of Greek debt are expected to take losses of 53.5% on the nominal value of their bonds as part of a debt exchange.

There is the fear and expectation by many economists, who believe this package may only delay a deeper default by a few months. Skeptics question whether a new Greek government will stick to the deeply unpopular program after elections due in April, and believe Athens could again fall behind in implementation.

The private creditor bond exchange is expected to launch on March 8 and complete three days later. This means a 14.5 billion euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.

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