BRUSSELS – Eurozone finance ministers sealed a deal for a massive new bailout of Greece in the early hours of Tuesday, including a major write-down of privately-held Greek sovereign debt, an EU official said.
"We have the essentials of the deal," the source said referring to both the write-down of Greek debt held by private creditors and the contribution of eurozone governments.
The euro immediately jumped against the dollar in Asian trading after finance ministers gave their green light to a 230-billion-euro (US$300 billion) financial lifeline, in exchange for strict surveillance of the Athens government over coming years.
The deal came after 12 hours of tense talks in Brussels, that saw Greek Prime Minister Lucas Papademos – a former European Central Bank No 2 – act as go-between for ministers with negotiators for private creditors.
The deal will bring government debt in Athens down to "120.5 per cent" of gross domestic product (GDP) by 2020, a eurozone governmental source also said.
This is just a fraction above the 120-per cent target set by the European Union and International Monetary Fund, and means a 5.5-billion-euro gap in funding was reached to bring it down from an estimated 129 per cent according to the latest analysis by international creditors.
The euro rose to $1.3266, from $1.3185 immediately prior to the announcement from Brussels.
Sources earlier said that banks were readying to up their write-down by several percentage points, from the 50-per cent "haircut" initially agreed by eurozone leaders in October.
National eurozone central banks also agreed to engage in their own write-down of Greek bonds.
A report on Greece's debt sustainability drawn up by the European Union and the International Monetary Fund first discussed last week by ministers was leaked as the talks headed into overtime.
This showed that in the worst-case scenario, Greece would need a whopping 245 billion euros in bailout aid by 2020, the Financial Times reported.
Under "the most optimistic scenario", it said that spending cuts imposed on Greece by backers could plunge Greece so deep towards depression that a new three-year bailout would fail to provoke growth.
A senior eurozone official said that these figures were already "factored in" by ministers a week ago, but that they might have worn down private creditors led by Deutsche Bank chairman Josef Ackermann.
The target of reducing Greek debt levels to 120 per cent of GDP by 2020 was set by eurozone leaders in October, down from around 160 per cent at present.
A eurozone governmental source said the nightmare scenario "probably helped in the effort" to bring the bailout package closer to achieving that goal.
The mood had been one of determination all day.
Greece, Germany, the IMF and Eurogroup chief Jean-Claude Juncker, had each maintained that a deal was do-able – Greek Finance Minister Evangelos Venizelos signalled "a long period of uncertainty coming to a close".
But Dutch Finance Minister Jan Kees De Jager demanded that the EU and the IMF take "permanent" control of decision-making over revenues and public expenditure in Greece.
Athens faces debt repayments of about 14.5 billion euros on March 20, otherwise it could be classed as bankrupt.
Full delivery of the package, as well as IMF assistance, will be contingent on Greece enacting deeply unpopular spending cuts and reforms. -- AFP