EUROZONE - Greece Bailout Approved

More Euros down a blackhole?

"Europe Agrees on New Bailout to Help Greece Avoid Default" by STEPHEN CASTLE, New York Times 2/20/2012

Excerpt

Greece finally secured its second giant bailout early Tuesday after euro zone finance ministers agreed to save it from bankruptcy in exchange for severe austerity measures and strict conditions.

After more than 13 hours of talks, the ministers approved a new bailout of 130 billion euros, or $172 billion, under which private investors in Greek debt will take even steeper losses than expected to help stave off the country’s imminent default.

“We have reached a far-reaching agreement on Greece’s new program and private-sector involvement,” Jean-Claude Juncker, the prime minister of Luxembourg, announced Tuesday morning.

The agreement could be a new turning point in the European debt crisis, which has raised questions about the viability of the euro itself.

Though the outcome had been predicted, the meeting in Brussels proved more grueling than expected as euro zone countries, the European Central Bank and the International Monetary Fund wrestled through the night over a discrepancy in the amount of Greece’s debt to be reduced.

Under the bailout terms, which were not finalized until after 5 a.m. Tuesday, Greece will reduce its debt to about 120.5 percent of its gross domestic product by 2020, from about 160 percent now. Achieving a deal with that goal proved difficult because the steady deterioration of public finances in Athens have left the country’s creditors with problems in making the figures for the new bailout add up.

After several rounds of tough talks, representatives of banks that hold Greek bonds, who had agreed in October to take a 50 percent loss on the face value of their bonds, agreed to take a 53.5 percent loss on the face value, the equivalent to an overall loss of around 75 percent.

Meanwhile Greece will pay lower interest rates on its bailout loans, and the European Central Bank agreed to give up profits from Greek bonds bought at a discount, and to pass those gains back to the government in Athens. This will be done via euro zone member countries because of the Central Bank’s regulations.

Stricter rules on euro zone debt and budget deficits are already in place, and next week European leaders are expected to agree on a new, higher firewall for euro bloc countries that get into financial trouble, a step that policy makers hope will signal the beginning of the end of the crisis.