Bailout deal ‘a comprehensive blueprint’ for Greek finances

6 Mar 12

The €130bn Greek bailout deal agreed yesterday provides a ‘comprehensive blueprint’ for putting the country’s public finances and economy back on a stable footing, according to European Union finance ministers

By Nick Mann | 22 February 2012

Under the agreement, Greece’s private creditors agreed to reduce the country’s debt burden to allow it to fully fund the austerity measures required by the ‘Eurogroup’ of finance ministers to approve the release of the funds.

The ‘troika’ of lenders behind the bailout – the European Commission, European Central Bank and International Monetary Fund – have also agreed to cut the interest rate on existing bailout loans.

These commitments came after Greece identified a further €325m of spending reductions demanded by the troika to close its fiscal gap in 2012. Leaders of the two main parties in the coalition government also provided assurances over the implementation of the austerity programme.

According to the Eurogroup, the package of measures should mean that Greece’s public sector debt-to-gross domestic product ratio will be brought down to 120.5% by 2020. Earlierthis month, EU figures revealed its debt was 159.1% of GDP at the end of September 2011.

But, in a statement, the finance ministers said the programme’s success hinged ‘critically on its thorough implementation by Greece’.

The statement added: ‘This implies that Greece must achieve the ambitious but realistic fiscal consolidation targets so as to return to a primary surplus as from 2013, carry out fully the privatisation plans and implement the bold structural reform agenda, in both the labour market and product service markets.’

To ensure this happens, European Commission monitors are set to be given given an ‘enhanced and permanent’ presence on the ground in Greece. This will help the ‘troika’ to assess Greece’s implementation of the austerity programme, the Eurogroup explained.

Greece has also committed to pay the amount of money it needs to service its debt into a separate account and to introduce legislation ‘as soon as possible’ to give priority to meeting its debt servicing payments.

Angel Gurría, secretary-general of the Organisation for Economic Co-operation and Development, welcomed the bailout deal. ‘The financial support by the euro area and the IMF, along with an estimated voluntary 53.5% cut of Greek debt holdings by the private sector, will provide the necessary confidence and breathing space for Greece to work on its recovery and for Europe to address its sovereign debt crisis,’ he said.

‘Long-term success will depend on Greece‘s efforts to advance the structural and social reforms necessary to fire its engines of economic growth up to full speed.’