21/02/2012
At their meeting on 20 February the euro area finance ministers agreed on the second programme for Greece, which comprises significant additional efforts from both private and official sector creditors and enhanced surveillance. These efforts should ensure that Greece's debt-to-GDP ratio is reduced to 120.5% by 2020. It was agreed that the official sector financing of the programme would amount to EUR 130bn until 2014, provided that all the conditions were continuously met.
The Eurogroup agrees that the main task for Greece now is to duly implement the agreed programme, which should put public finances and the economy of Greece on sustainable footing and thus safeguard financial stability in Greece and the euro area as a whole. The European Commission will reinforce the presence of its Task Force for Greece in Athens to bolster the country's administrative capacity and provide technical assistance. The euro area member states are ready to provide their expertise too.
The Commission experts will also work closely with the Greek government to assist the Troika (i.e. the European Commission, the European Central Bank and the International Monetary Fund) which will assess how Greece is implementing the programme.
Greece pledged to introduce over the next two months a new provision into its national law that guarantees priority to debt -servicing payments. It also agreed to introduce this provision into its constitution later on.
In addition, Greece has decided to put in place a mechanism to better trace and monitor the funds intended for servicing its debt. Under this mechanism, an amount corresponding to the coming quarter's debt service will be paid directly to a segregated account of Greece's paying agent.
Official sector involvement
First, all member states agreed on an additional retroactive lowering of the interest rates on the bilateral loans to Greece, so that the margin amounts to 150 basis points over the entire period of the loans. This will bring Greece's debt-to-GDP ratio down by 2.8 percentage points in 2020 and reduce financing needs by EUR 1.4bn.
Moreover, there will be no additional compensation for higher funding costs for creditor member states.
"The absence of an additional compensation for higher funding costs should be countered by the fact that Eurosystem (i.e. the European Central Bank and national central banks) holdings of Greek government bonds which have been acquired for public policy purposes and thus will be protected from losses under the debt exchange, will generate profits for the Eurosystem and eventually the revenue for governments", said Prime Minister of Luxembourg Jean-Claude Juncker, who chaired the Eurogroup meeting.
Second, governments of member states whose central banks currently hold Greek government bonds in their investment portfolio undertake to pass on to Greece an amount equal to any future income accruing to their national central bank stemming from this portfolio until 2020.
These payments would be expected to help reduce the Greek debt ratio by 1.8 percentage points by 2020 and it is estimated that they will lower the financing needs over the programme period by approximately EUR 1.8bn.
"On the basis of these elements and subject to the implementation of the prior actions, euro area member states stand ready to provide, together with the IMF, additional official programme financing of up to EUR 130bn until 2014", concluded Mr Juncker.
Private sector involvement
The Greek authorities reached a common understanding with the private sector creditors on the general terms of the private sector involvement in the restructuring of the Greece's debt. A nominal "haircut" (a reduction in the amount of debt to be repaid to creditors) amounting to 53.5% was agreed.
In the coming days Greece will formally launch the bond exchange, whereby the bondholders will receive new bonds with the interest rates of up to 2% until 2014; 3% between 2015-2020 and 4.3% thereafter.
"Given the balanced agreement reached with the creditor group led by the Institute of International Finance and the fact that the package delivers debt sustainability for Greece, we expect a very high participation rate", said Mr Juncker.
Further steps
Member states should now launch their national procedures to allow for the provision by the EFSF (European Financial Stability Facility) of the necessary financing.
The next Eurogroup meeting will take place at the beginning of March to assess the implementation by the Greek government of all prior actions. It will examine the next steps to be taken and launch this second programme for Greece.
The European Council meeting on 1-2 March will review the combined lending capacity of the EFSF and ESM (European Stability Mechanism).
More information:
Press conference webcast
Statement by the Eurogoup (pdf)