By RFE RL
Tuesday, February 21st, 2012
(RFE/RL) — Eurozone finance ministers have reached a deal to provide Greece with a 130 billion-euro loan package as part of a two-pronged approach to save that country from bankruptcy.
Under the deal, private investors with Greek bonds — mostly banks and investment funds — also are being asked to write off another 100 billion-euro in payments owed to them by Greece.
Luxembourg’s Prime Minister Jean-Claude Juncker, who heads the Eurogroup of finance ministers, said the loans would be disbursed after Athens passes a constitutional amendment allowing tighter surveillance of its finances by the European Union and International Monetary Fund (IMF).
He said Greece also has agreed to set up a separate account containing three months of debt-service payments to guarantee it will continue paying its foreign debt.
Juncker said a eurozone meeting has been called for early March to verify Athens has complied with its obligations under the deal.
Calls for Athens to set up the separate escrow account came from Germany, which wanted guarantees to ensure that Greece honors promises made by the current government as part of the bailout deal — even if there is a change of government after Greece’s April elections.
Opponents of that provision had argued that the move would be an unprecedented infringement upon Greece’s fiscal sovereignty.
But IMF chief Christine Lagarde said within hours of the deal being struck that an essential element is regular checks on how Greece is implementing promised reforms.
“The combination of these significant efforts plus the ambitious program, with clear efforts on competitiveness, should really give enough space for Greece to restore its competitiveness, to improve its debt sustainability, and to demonstrate that with good and solid and rigorous implementation — checked on a regular basis by the various partners with the program — it can get back on track,” Lagarde said.
Lagarde also said the eurozone should boost its bailout funds if it wants the IMF to make a “significant” contribution to the Greek bailout loan package, which is the second for the troubled country since May 2010.
Lagarde said the IMF would decide in March how much it would contribute to the 130 billion-euro loan package — a decision she said would be based on Greece delivering on its reform promises as well as on “additional matters, such as the proper setting up of a decent [eurozone] firewall.”
Greek Prime Minister Lucas Papademos says Athens will continue to uphold its obligations under the bailout deal, regardless of who wins the April elections.
“I’m convinced the government after the election will also be committed to implement the program fully and in a timely fashion because this is in the interest of the Greek people,” Papademos said.
The euro steadied on financial markets after an initial jump following the announcement of the Greek deal, and European stocks were lower in early trading. Analysts say that suggests market traders may not be totally persuaded the deal will prevent further turmoil in the future.