EU Set to Free Up Greek Rescue Funds as Talks Progress on New Aid Package
Greece to Receive Up to $124 Billion
Milos Bicanski/Getty Images
Demonstrators outside the Greek Parliament hold the flag of Greece as they gather during a protest against plans for new austerity measures. Greece now needs more funds as record bond yields has left it locked out of markets.
Demonstrators outside the Greek Parliament hold the flag of Greece as they gather during a protest against plans for new austerity measures. Greece now needs more funds as record bond yields has left it locked out of markets. Photographer: Milos Bicanski/Getty Images
Deutsche Bank AG CEO Josef Ackermann
Hannelore Foerster/Bloomberg
Deutsche Bank AG Chief Executive Officer Josef Ackermann, at a conference in Berlin yesterday with Chancellor Angela Merkel, predicted that financial companies would contribute to help avert a “meltdown.”
Deutsche Bank AG Chief Executive Officer Josef Ackermann, at a conference in Berlin yesterday with Chancellor Angela Merkel, predicted that financial companies would contribute to help avert a “meltdown.” Photographer: Hannelore Foerster/Bloomberg
European finance chiefs may approve their portion of a 12 billion-euro ($17.4 billion) aid payment for Greece as they work to cobble together a second rescue for the cash-strapped country.
Ministers from the 17 euro nations hold a conference call at 6 p.m. Brussels time today to approve distributing the fifth installment of last year’s 110 billion-euro bailout. The meeting will last around an hour and a statement will likely be released afterward. The ministers will also discuss progress in convincing private banks to participate in a new aid package that may include as much as 85 billion euros in new funds.
“The fifth tranche from EU countries will most likely go through,” said Vincent Chaigneau, head of interest-rate strategy at Societe Generale SA. “They’ll need more time to agree on a second bailout, but as long as they can agree on the principles, that should hopefully be good enough.”
The yield on Greece’s two-year bond fell more than 150 basis points this week after Prime Minister George Papandreou secured passage of a 78 billion-euro austerity package and French and German banks showed willingness to take part in the new bailout. Finance chiefs are trying to wrap up the new rescue plan, which aims to shield Greece from financial markets for three years and may be worth 85 billion euros, at a meeting on July 11.
A year after the bailout that was supposed to stop the spread of the debt crisis, Greece’s debt is set to top 150 percent of gross domestic product, the country is mired in recession and needs more aid to avoid default.
New Package
Euro-area nations and private investors will contribute 70 percent of the new aid, with the International Monetary Fund offering the rest, Thomas Wieser, an Austrian finance ministry official said. The new package will put the total cost of bailing out Greece, Ireland and Portugal at almost 360 billion euros.
First the finance ministers and IMF must agree to pay out the 12 billion-euro disbursement, which was delayed by creditors’ demands that Greece show it could get its bailout program back on track after missing its deficit target last year. The euro region tranche is worth 8.5 billion euros.
Greece’s new austerity package aims to cut the country’s budget gap to 7.5 percent of GDP this year from 10.5 percent in 2010.
The IMF had threatened to withhold its portion of the payout until the EU came up with a plan to plug Greece’s funding gap next year. Record bond yields prompted Greece to drop plans under the bailout to return to bond markets next year, leaving it short of 30 billion euros of funding.
Weekend Decision
“I’m certain we now have a sufficient consensus that we can take a decision during the weekend on the fifth tranche of the Greek loan package,” EU Economic and Monetary Commissioner Olli Rehn said in a Bloomberg Television interview in Helsinki yesterday.
Greek two-year notes led gains by securities from the euro region’s most-indebted countries as speculation about an imminent Greek default eased. The yield on Greece’s two-year debt fell 46 basis points to 26.8 percent. That yield topped 30 percent last month on default concerns. The yield on Greece’ 10- year bond was little changed at 16.33 percent.
German and French banks, the biggest holders of Greek debt, have stepped up talks in recent days on the rollover that officials say should amount to as much as 30 billion euros.
Meltdown
Deutsche Bank AG Chief Executive Officer Josef Ackermann on June 29 predicted that financial companies would contribute to help avert a “meltdown.”
“An agreement on the form of private-sector involvement will probably be reached by the July 11 deadline,” Ben May, European economist at Capital Economics Ltd. in London, wrote in a note to investors. “Nonetheless, with the level of Greek debt set to remain astronomically high, this will not mark the end of the Greek crisis.”
Under a French proposal, bondholders would agree to roll over 70 percent of their debt maturing through mid-2014 into new 30-year Greek bonds with the principal on the new debt guaranteed through Greece investing in zero-coupon bonds of similar maturity. Under a second option, investors would roll over 90 percent of their debt into new five-year bonds with no guarantee.
To contact the reporter on this story: Andrew Davis in Rome at abdavis@bloomberg.net
To contact the reporter on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net.
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