Eurozone leaders agreed a deal in Brussels Thursday that will lead to Greece continuing to receive emergency loans but which also aims to reduce the debt burden on Athens and provide extra funding to stimulate growth in its depressed economy.
The package, which European Commission President Jose Manuel Barroso described as ?very credible,? additionally seeks to prevent the debt crisis that has afflicted Greece, Portugal and Ireland from spreading to other members of the eurozone. In a bid to prevent contagion, the 17 leaders agreed to give greater flexibility to the European Financial Stability Facility (EFSF) that would allow the fund, created in the wake of the Greek crisis, to also buy back bonds from Greece in a further bid to reduce the country?s debt load.
Speaking at a joint news conference with Barroso and European Council President Herman Van Rompuy, Prime Minister George Papandreou said he welcomed the ?support and collective will? shown by the eurozone leaders and the EU?s institutions.
?This will create a sustainable path and a sustainable debt management for Greece,? said Papandreou, amid reports that the new package will be worth 109 billion euros and will include participation from the private sector worth 37 billion euros.
?The private sector involvement is for Greece and Greece alone,? said Barosso. ?It is a unique solution.?
It was also agreed that the maturities of the loans from the EU and the International Monetary Fund would be increased from 7.5 years to 15 years and the interest rate would be reduced from 4.5 to 3.5 percent. Also, Athens will be given a 10-year grace period on new loans.
?This will lead to the lightening of the burden on the Greek people,? added the prime minister, who insisted Greeks were ?proud, creative and hardworking.?
Papandreou also referred to an agreement to create a ?European-type Marshall Plan? or ?Greek plan for growth.? Details of the scheme remained sketchy late Thursday.
The Institute of International Finance (IIF), which represents bankers and insurers, said it offered a plan to exchange and roll over Greek debt that will save the country 54 billion euros over three years. The IIF said the voluntary plan aimed for 90 percent participation by private bondholders.
The involvement of private investors is likely to lead to credit rating agencies deeming Greece to be in selective default but the impact of such a development was dampened by European Central Bank President Jean-Claude Trichet reversing the ECB?s position and agreeing to accept defaulted Greek bonds as collateral.
Bank of Greece Governor Giorgos Provopoulos flew to Brussels at the last minute to brief leaders on what impact a selective default might have on Greek banks. The eurozone chiefs agreed that the EFSF could be used to finance Greek lenders, easing the pressure on the local banking sector, which owns more than a quarter of Greek public debt and will be hit by participation in any voluntary haircut or buyback scheme.
?This is a message of support for the Greek banking sector,? said Papandreou.