Euro-area finance ministers reached agreement on a second bailout package for Greece that is vital to staving off a default next month.
The deal includes a 53.5 percent writedown for investors in Greek bonds, Luxembourg’s Jean-Claude Juncker, who led the meeting, told reporters early this morning. Debt-swap bonds will have a coupon of 2 percent in 2014, rising to 3 percent in 2015-2020 and to 4.3 percent after that, he said.
Finance ministers haggled into the night in Brussels over the terms of new loans to Greece and a possible contribution by central banks, and leaned on investors to accept bigger write-offs in a bond exchange. Ministers were discussing a Greek debt target of 121 percent of gross domestic product by 2020.
European Central Bank President Mario Draghi called the deal “a very good agreement.” Italian Prime Minister Mario Monti said private bondholders agreed to take a bigger writeoff on their Greek debt after “intense” negotiations.
The euro surged on news of a deal, rising as high as $1.3293 and trading up 0.1 percent at $1.3262 at 5:30 a.m. in Brussels.
European governments need to weld together the program to give enough time for the bond exchange -- designed ultimately to write off about 100 billion euros of Greek debt -- to go ahead by a mid-March deadline. The target is for the swap offer to run from Feb. 22 to March 9, so the exchange takes place in time for Greece to escape the full 14.5 billion-euro cost of a March 20 bond redemption, German lawmakers were told last week by government officials.
Bondholders’ response to the swap, Greece’s ability to prolong two years of austerity, and a series of parliamentary approvals in northern European countries gripped by an anti-bailout mindset loom as risks to the latest salvage operation.
Frustrated with Greece’s inability to meet two years of targets for cutting the deficit and selling off state assets, donor countries are also insisting on more control over how Greece spends the money. German Finance Minister Wolfgang Schaeuble said Greece accepts the idea of paying international aid into a special account, which would give priority to keeping Greece solvent before releasing money for the country’s budget.
The Netherlands, one of four euro-area nations still ranked as AAA borrowers, is pushing for monitors to set up a full-time observation post in Athens.