# 6 Key elements of the deal,



## MaidenScotland (Jun 6, 2009)

The Eurogroup of finance ministers declared that "ensuring debt sustainability and restoring competitiveness" are the goals of the second bailout for Greece. The unspoken aim is to ensure there will be no chaotic default on 20 March, when a €14.4bn (£12.1bn) bond repayment falls due.

The package envisages pain on all sides: for Greece, for the private-sector lenders to Greece, and for the official lenders to the country, such as the European Central Bank.

As before, the ambition is to reduce Greece's debt-to-GDP ratio from its current level of 160% to roughly 120% by 2020. The new package follows the Greek parliament's recent approval of an extra €325m of spending cuts – including deep cuts to pension payments – to fill a gap in the €3.3bn of extra budget savings this year which the EU and IMF had demanded.

The main elements of Tuesday's agreement are:

1. Greece will have to accept non-Greek inspectors in Athens

European monitors, "an enhanced and permanent presence on the ground in Greece" as the statement put it, will move into Athens ministries.

2 An escrow account

The Greek government will have to service its debts from a special, separate account, depositing sums in advance to meet payments that fall due in the following three months. This operation will be supervised by the so-called troika: the International Monetary Fund, the European Union and the European Central Bank.

This arrangements reflect lenders' deep scepticism about the Greek government's ability, or willingness, to stick to the austerity programme and meet spending targets. So, too, does the demand that Greece rewrites its constitution to give priority to debt servicing.

3 Deeper losses for the private-sector holders of Greek bonds

This was the biggest surprise in the deal. Last October the private debtors agreed to accept a 50% reduction in the face value of their Greek IOUs; the "haircut" will now be 53.5%, and in addition their replacement bonds will carry a lower interest rate than previously discussed: approximately 2% for the first three years, 3% for the next five years, and 4.2% thereafter. This equates to a debt write-off of about €100bn.

This PSI (private sector involvement) element was increased because reworked projections showed that Greece, even with a €130bn bailout, would still fall short of the 120% debt-to-GDP target by 2020.

The demand that bondholders should bear bigger losses was one of the sticking-points that turned the talks into a 14-hour marathon.

The private-sector bondholders (banks, insurers, pension funds and investment funds) are still only being "invited" on a voluntary basis to participate. But Charles Dallara of the Institute of International Finance, the chief negotiator for bondholders, appeared to accept when he said the package was "a fair deal for all parties".

4 A cut in borrowing costs

Greece's official lenders (the European Central Bank, the eurozone's bailout fund and the IMF) have agreed to cut the interest rate on existing bailout loans. Unlike private-sector holders, however, these official lenders will not suffer a haircut. For the time being at least, the real value of a Greek bond depends on the identity of the owner. For its part, the ECB says it will distribute to euro-member states any profits it makes by owning Greek bonds.

5 The IMF will make a sizable contribution

The prize for Greece is the €130bn bailout, or loan. The big unanswered question is exactly how much the IMF will cough up – the statement spoke only of "a significant contribution".

The cash will not be handed over immediately. Instead, the Eurogroup ministers want to see if private-sector bondholders do indeed "volunteer", as the deal sets out, for a sharper haircut than they had been expecting. The Eurogroup is also demanding that Greece give evidence of the legal framework that it will put in place to implement the "prior actions", meaning spending cuts.

6 The money will be made available shortly

If the plan proceeds on schedule, the bailout will happen early next month, in time to meet the critical bond repayment on the 20th of the month.


----------



## MaidenScotland (Jun 6, 2009)

I wonder if this will work.

I was watching a programme on the Greece problem and I was astounded at the people who were quite brazen in stating.. I do not pay taxes and stating that they never will. This man was not an isolated case.. it seems to be the norm,
Where do the think the money to run the country is to come from?


----------



## Kato_Au_Placard (Oct 5, 2011)

MaidenScotland said:


> I wonder if this will work.
> 
> I was watching a programme on the Greece problem and I was astounded at the people who were quite brazen in stating.. I do not pay taxes and stating that they never will. This man was not an isolated case.. it seems to be the norm,
> Where do the think the money to run the country is to come from?


germany


----------



## zabestof (Jul 23, 2010)

Kato_Au_Placard said:


> germany


I loled ... sad but true.


----------



## MaidenScotland (Jun 6, 2009)

You are right.. sadly right


----------

