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27 October 2011

FT: EU reaches deal on Greek bonds


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European leaders reached a deal with Greek debt holders that would see private investors take a 50 per cent cut in the face value of their bonds, a deep haircut that officials believe will reduce Greek debt levels to 120 per cent of GDP by the end of the decade.


The agreement includes a new €130 billion bailout of Greece by the European Union and the International Monetary Fund. “Debt sustainability for Greece can only be established if the private sector participates in a substantial way”, Angela Merkel, the German chancellor, said after the deal was reached. “The world had its eyes on us today.”

The Greek deal proved the most difficult and intractable of all the elements of a three-pronged rescue plan that European leaders hope will reverse their escalating sovereign debt crisis.

They agreed to increase the firepower of their €440 billion bailout fund by providing “risk insurance” to new bonds issued by struggling eurozone countries – a scheme designed for potential use in Italy – but they did not specify the amount of losses that would be covered by the insurance. Both Ms Merkel and Nicolas Sarkozy, the French president, said it would increase the size of the fund “four or five times”, but a final number could not be calculated because it was unclear how much money is left in the fund. Most analysts estimate about €250b billion will remain after the second Greek bail-out, putting the fund’s new firepower at more than €1,000 billion.

Full article (FT subscription required)



© Financial Times


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