Euro group approves Greek aid

Euro-area finance ministers approved the release of €35.5 billion of aid to Greece after the country's creditors backed a debt swap deal to reduce the country's mountainous public debt.

Greece's finance ministry said creditors had tendered 85.8 per cent of the €177 billion in bonds regulated by Greek law.

Greece's international lenders, the European Union and International Monetary Fund, had demanded the bond swap as a condition for the €130 billion bailout package, the country's second since 2010.

Following the announcement, euro zone finance ministers said they had approved the release of funds which Athens needs to meet heavy debt repayments later this month.

Luxembourg prime minister Jean-Claude Juncker, who heads the group of euro-region finance chiefs, said the move allows the bond swap to close this month as planned with as much as €30 billion in public sweeteners. The ministers also released €5.5 billion for Greek interest payments and said Greece was on track to win the rest of its bailout funds.

"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 a second Greek rescue package," Mr Juncker said.

Speaking at the launch of a new exporters' division within Enterprise Ireland today, Minister for Jobs, Enterprise and Innovation Richard Bruton stressed that, while the Greek deal had been achieved, the country has going through a period of austerity.  "The Greek deal is anything but a good deal for the Greek people…,50 per cent youth unemployment, a huge shake-out in the public service, a devastating impact on ordinary people in Greece. It's not a route that anyone would look at with envy."

Ireland was in "a very different place," he said. "We are paying down our debt, we are seeing a restoration of confidence in the Irish economy."

Mr Bruton also noted that negotiations on the Anglo promissory note were taking place, and the troika were working on a paper as to how that might be achieved.

Euro leaders have hailed the debt exchange as a central element in their efforts to contain the sovereign debt crisis and get Greece's economy back on track. IMF managing director Christine Lagarde said yesterday that the crisis, had it remained unchecked, could have done more damage to the global economy than the financial market collapse of 2008.

The debt swap and second rescue package may not cure Greece's long-term debt woes, said Charles Wyplosz, director of the Geneva-based International Centre for Money and Banking Studies.

The debt swap aims to reduce Greece's debt burden by more than €100 billion and lower debt to 120.5 per cent of gross domestic product by 2020.

"We still don't have a solution for Greece, so there will be a harder default to come," Mr Wyplosz said. "Greece can't grow with this kind of debt so something more has to give."

The euro-area ministers are scheduled to meet in Brussels on March 12th to discuss further elements of Europe's crisis-fighting efforts, including whether and how to increase the firewall provided by the euro area's rescue funds.

German finance minister Wolfgang Schäuble said ministers will decide on the main Greek aid package at that meeting.

While the participation rate in the swap was "very heartening", it remains decisive that Greece now carries out the necessary economic reforms, he said. "Naturally, this is only a foundation that's been laid," he told reporters in Berlin.

The International Swaps and Derivatives Association's determinations committee meets in London today to weigh whether the use of the collective action clauses is a credit event that will trigger the swaps.

Mr Schäuble said that decision would not affect Greece's aid. Mr Juncker said today that ministers had been told Greece would use collective action clauses on bonds governed by Greek law and that finance ministers were encouraged by "high private-sector participation" in the swap.

The ministers said participation could rise further during a sign-up extension for bonds governed by foreign law. The debt swap operation has been a "resounding success," Amadeu Altafaj, a spokesman for economic and monetary affairs commissioner Olli Rehn, told reporters in Brussels today.

The Greek government said today it will reach its target for the debt restructuring, with investors holding 95.7 per cent of eligible bonds taking part. The government's figure includes using the clauses to enforce participation, a move that may trigger insurance payouts under rules governing credit-default swap contracts.

In the exchange, investors will receive new bonds with a face value of 31.5 per cent of the old ones together with notes from the European Financial Stability Facility. The new debt is governed by English law and comes with warrants that will provide extra income in years when Greek economic growth exceeds thresholds. The net present value loss for investors is more than 70 per cent.

Separately, Germany wants to reignite a debate over creating an EU constitution to strengthen the union's ability to fight off financial troubles and counter-balance the rising influence of emerging economies, Germany's foreign minister said today.

Guido Westerwelle said the Lisbon treaty, drafted after Dutch and French voters rejected a proposed constitution in 2005, was not enough to keep European decision-making structures effective.

"We have to open a new chapter in European politics," Westerwelle told reporters on the sidelines of a meeting of EU foreign ministers in Copenhagen. "We need more efficient decision structures."

The German minister presented the idea to his counterparts at the Copenhagen meeting, during which they also discussed plans to run foreign policy more cheaply. He said discussions on the issue of a new constitution should continue in Berlin.

"I think we have to reopen the debate about a European constitution again," he said. "We have a good treaty, but we need a constitution ... There are new centres of power in the world."

German government sources said representatives of several EU member states would likely meet in the next few weeks for talks.

Reuters