Papademos hails ‘historic’ deal for new loans, debt reduction

Prime Minister Lucas Papademos hailed as ?historic? an agreement struck after 13 hours of talks in Brussels that will lead to Greece receiving a further 130 billion euros of loans and its bondholders accepting a 53.5 percent haircut.

Speaking on Tuesday morning after the marathon negotiations over the details of the new deal, Papademos expressed hope that the new bailout would restore some stability.

?We now have the ability to progress with stability, to limit uncertainty and to increase trust in the Greek economy in order to create better conditions,? he said.

?The new program has elements that will help improve competitiveness and create condition to support steady growth.?

Under the agreement struck in Brussels, Greece will receive 130 billion euros in loans, bondholders will accept a haircut of 53.5 percent rather than 50 and the European Central Bank will pass on any profits from the Greek bonds it holds to national eurozone central banks.

In return for receiving the money from the ECB, eurozone members agreed to lower the interest rate on Greek loans and to pass on any profit from these bonds to Greece.

This would reduce Greek debt by an estimated 3.2 billion euros, bringing Greek debt down to a projected 120.5 percent of GDP by 2020, close to the eurozone?s target of 120 percent, which it deemed to be sustainable.

In return for receiving the new loans, Greece will accept closer monitoring from its lenders. However, the Eurogroup agreement suggests that the oversight will take place through the European Union Task Force for Greece, which is an agency of the European Commission.

?The Eurogroup also welcomes the stronger on site-monitoring capacity by the Commission to work in close and continuous cooperation with the Greek government in order to assist the Troika in assessing the conformity of measures that will be taken by the Greek government, thereby ensuring the timely and full implementation of the program,? the text of the agreement said.

Also, Athens will have to create an escrow account into which money to service its debt will be paid.

?The Eurogroup also welcomes Greece’s intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece’s debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter’s debt service directly to a segregated account of Greece’s paying agent,? the agreement said.

Greece will also have to introduce a legal provision, later to be made part of the Constitution, that will give priority to debt servicing rather than domestic expenditure.