Greece gets thumbs-up for second EU-IMF bailout deal worth €130bn

Sat, Mar 10, 2012, 00:00

EURO ZONE finance ministers cleared the way for the second Greek bailout as Athens moved to compel dissenting bondholders to take part in a mammoth restructuring of its national debt, the largest such deal in history.

A large majority of investors backed the restructuring plan, designed to cut some €110 billion from the €206 billion value of privately held Greek bonds to put its debt on a “sustainable” footing by 2020. In turn, Greece is set to receive a €130 billion EU-International Monetary Fund bailout package under which it must execute onerous cutbacks and reforms for years and submit to heightened external supervision.

“The euro group considers that the necessary conditions are in place to launch the relevant national procedures required for the final approval of the euro area’s contribution to the financing of the second Greek adjustment programme,” said Jean-Claude Juncker of Luxembourg, president of the ministers’ group. Final procedural steps are not expected until finance ministry officials meet next Wednesday.

The IMF will decide on Thursday how much money it will provide, but this will be considerably less than its one-third contribution to the first bailout.

Europe will make up the difference, meaning Greece will still avert the danger of an uncontrolled sovereign default within weeks. Instead, the European authorities are now on the cusp of achieving an orderly default to cut the country’s debt.

According to Mr Juncker, the euro zone ministers were “encouraged” by the high level of participation in the restructuring process.

By the deadline on Thursday, the owners of €152 billion from a total of €177 billion in bonds issued under Greek law (85.8 per cent) joined the deal. Holders of a further €20 billion in foreign law bonds (69 per cent) said they too will join.

With Europe’s approval, Athens will now compel the remaining investors in the Greek law bonds to sign up. It will invoke recently enacted collective action clauses, empowering a majority of bondholders impose their will on dissenters. The total acceptance level will reach €197 billion from the €206 billion in play at the outset.

In the hope that other foreign law investors change stance, Greece pushed the deadline out by a fortnight. But the collective action clause move is likely to trigger insurance payouts on credit default swap contracts on the relevant debt.

Greek finance minister Evangelos Venizelos said the amount of cash at stake was less than €5 billion, arguing this was negligible in the wider context.

Mr Venizelos briefed his counterparts on a teleconference yesterday. They approved the release of €30 billion in “sweeteners” to participating investors via the European Financial Stability Facility bailout fund. They also decided to provide €5.5 billion via the EFSF to pay accrued interest on the restructured debt.

The ministers will discuss the deal again next Monday in Brussels. They have already concluded Greece has implemented “all agreed prior actions” required as a condition for the second rescue.

German minister Wolfgang Schäuble urged Greece to implement the necessary economic reforms: “Naturally, this is only a foundation that’s been laid.”

The bailout talks were marred for months by brinkmanship. Athens came under sustained pressure for failing to execute promises under its first, unsuccessful bailout.

Europe resolved last summer to seek private sector involvement in the second bailout.

With a €14 billion bond redemption due on March 20th, Greece and its sponsors ran the risk of missing this payment without agreement on a new rescue plan.

Greece cannot afford to pay the money, but Europe withheld the second bailout pending key reforms and a private sector involvement deal. The authorities pressed for an agreement in time to cut the bill due on March 20th.