Europe seals new Greek bailout but doubts remain

Tue Feb 21, 2012 11:52am EST
 
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By Annika Breidthardt and Jan Strupczewski

BRUSSELS (Reuters) - Euro zone finance ministers agreed a 130-billion-euro ($172 billion) rescue for Greece on Tuesday to avert an imminent chaotic default after forcing Athens to commit to unpopular cuts and private bondholders to take bigger losses.

The complex deal wrought in overnight negotiations buys time to stabilize the 17-nation currency bloc and strengthen its financial firewalls, but it leaves deep doubts about Greece's ability to recover and avoid default in the longer term.

After 13 hours of talks, ministers finalized measures to cut Athens' debt to 120.5 percent of gross domestic product by 2020, a fraction above the target, securing a second rescue in less than two years in time for a major bond repayment due in March.

"We have reached a far-reaching agreement on Greece's new program and private sector involvement that would lead to a significant debt reduction for Greece ... to secure Greece's future in the euro area," Jean-Claude Juncker, who chairs the Eurogroup of finance ministers, told a news conference.

Greece will be placed under permanent surveillance by an increased European presence on the ground, and it will have to deposit funds to service its debt in a special account to guarantee repayments.

The 5 a.m. deal (0400 GMT) was hailed as a step forward for Greece, but experts warned that Athens will need more help to bring its debts down to the level envisaged in the bailout and will remain worryingly "accident prone" in coming years.

By agreeing that the European Central Bank would distribute its profits from bond-buying and private bondholders would take more losses, the ministers reduced Greece's debt to a point that should secure funding from the International Monetary Fund.

Italian and Spanish bond yields fell amid relief among investors that a threat to the wider euro zone had been avoided, although expectations of an agreement had been largely priced into foreign exchange and stock markets.   Continued...

 
Greece's Finance Minister Evangelos Venizelos arrives for a news conference at a ministry hall in Athens, February 21, 2012. 

 REUTERS/Yiorgos Karahalis