The total amount of the joint eurozone-IMF loan will triple from the original sum of €45bn to €120bn to cover Greek’s borrowing requirements for the next three years. Up to €90bn of this will come from the eurozone member states as three-year loans with each country charging an interest rate of more than 5%, allowing them to make money from the deal.
Economics commissioner Ollie Rehn said that the loan “will be conditional on implementing on the decisions required to meet the conditions of fiscal consolidation and structural reforms”. He added that the financial support will give Greece a sufficient breathing space from the pressure of the financial markets to restore public finances and put the economy back on a path of sustainable growth.
He would not provide details of the agreement being hammered out in Athens over the past 10 days, but underlined that it was being done to safeguard financial stability not just in Greece but also in Europe and globally. A crucial step in finalising the deal was achieved in Berlin on Wednesday when German Chancellor Angela Merkel and the main political parties accepted the tripling of the loan, which increases Germany’s contribution to €25bn.
The details of the loan will be signed off at a special summit of leaders from the 16 eurozone countries, including Taoiseach Brian Cowen, in Brussels before May 10, in time for Greece’s next major debt repayment of about €10bn.
Mr Cowen said Ireland’s early action, in terms of borrowing and spending cuts, had cushioned it from the contamination effects of the Greek situation. “I think it is important to point out that Ireland has first mover advantage in relation to this. We have done a lot of work since this crisis began by making adjustments in our total GNP of over 7.5%.
“That has been well received by markets where they understand and see the Government has taken decisions,” he said.
A Department of Finance spokesperson said they will consider increasing Ireland’s contribution, “in consultation with our European colleagues”. Legislation should be before the Oireachtas in the next few weeks. The deal, meanwhile, will include a series of austerity measures the Greek government must agree to implement, including, it is expected, freezing private sector wages, the loss of the traditional extra two months wages per year and raising the limit on the number of people who can be fired from 2% to 4%. Greek Prime Minister George Papandreou met trade union leaders yesterday ahead of a national strike planned for May 5, to try to win their support for the measures in an economy renowned for corruption and tax evasion.
The biggest employers group, the Federation of Greek Industries, said they will support it. Stocks and bonds rallied and Greek 10-year bond yields fell to 8.9% from 9.8% after Rehn said the discussions would end “in the next days”.
The prospect of a successful bailout plan to avoid a Greek default on its national debt gave stock markets a shot in the arm, yesterday, with the ISEQ outperforming the major European indices. The CAC in Paris was up by 1.4%, Frankfurt’s DAX rose by 1% and London’s FTSE bounced back from an eight-week low on Wednesday, to rise by 0.6%. Dublin’s ISEQ, however, jumped by more than 3%.