After more than 13 hours of talks, the ministers approved a new bailout of 130 billion euros, or $172 billion, under which private investors in Greek debt will take even steeper losses than expected to help stave off the country’s imminent default.
“We have reached a far-reaching agreement on Greece’s new program and private-sector involvement,” Jean-Claude Juncker, the prime minister of Luxembourg, announced Tuesday morning.
The agreement could be a new turning point in the European debt crisis, which has raised questions about the viability of the euro itself.
Though the outcome had been predicted, the meeting in Brussels proved more grueling than expected as euro zone countries, the European Central Bank and the International Monetary Fund wrestled through the night over a discrepancy in the amount of Greece’s debt to be reduced.
Under the bailout terms, which were not finalized until after 5 a.m. Tuesday, Greece will reduce its debt to about 120.5 percent of its gross domestic product by 2020, from about 160 percent now. Achieving a deal with that goal proved difficult because the steady deterioration of public finances in Athens have left the country’s creditors with problems in making the figures for the new bailout add up.
After several rounds of tough talks, representatives of banks that hold Greek bonds, who had agreed in October to take a 50 percent loss on the face value of their bonds, agreed to take a 53.5 percent loss on the face value, the equivalent to an overall loss of around 75 percent.
Meanwhile Greece will pay lower interest rates on its bailout loans, and the European Central Bank agreed to give up profits from Greek bonds bought at a discount, and to pass those gains back to the government in Athens. This will be done via euro zone member countries because of the Central Bank’s regulations.
Stricter rules on euro zone debt and budget deficits are already in place, and next week European leaders are expected to agree on a new, higher firewall for euro bloc countries that get into financial trouble, a step that policy makers hope will signal the beginning of the end of the crisis.
The talks on Monday addressed the firewall issue, though only briefly. A new, permanent fund of 500 billion euros, or $660 billion, called the European Stability Mechanism, is due to come into existence in July, and one way of bolstering its power would be to run it alongside the current, temporary, rescue fund, the European Financial Stability Facility.
The bailout, with a stronger firewall, could provide the euro zone with some much-needed momentum. The injection of liquidity into the banking sector by the European Central Bank late last year — with the tacit support of Germany — had started to convince critics that there was a determination to save the currency.
Yet only last week the Greek bailout appeared to hang in the balance when rumors circulated that Germany’s finance minister, Wolfgang Schäuble, was willing to contemplate a Greek default. As tempers flared, the Greek finance minister, Evangelos Venizelos, suggested that some people were trying to drive his country out of the euro zone, and the Greek president, Karolos Papoulias, accused Mr. Schäuble of insulting the country.
It remains unclear whether a default was contemplated seriously or merely floated as a means of pressuring Athens.
Nevertheless, the episode underlines the extent to which Greece remains a weak spot for the 17 European Union countries that use the euro. This would be the second major bailout for Greece in two years. In May 2010, European governments and the International Monetary Fund put together the first three-year bailout package of 110 billion euros, then worth about $146 billion, not all of which has been used.
Doubts persist about Greece’s ability to carry out the tough austerity measures pushed through Parliament or to manage the weakened economy.
Those long-term fears deepened with the leak of an official report from the European Commission, European Central Bank and the International Monetary Fund that said that if changes were not made, Greek debt could remain at 160 percent of G.D.P. in 2020. It also suggested that more help would be needed after the period covered by the bailout being negotiated. That could amount to $66 billion more from 2015 to 2020. NYT