Sunday, December 2, 2012

Is This Greek Deal for Real?


Director Christine Lagarde gathered in Brussels at around lunchtime on Monday, it was their third such meeting in two weeks. Previous attempts to agree on a formula to reduce Greek debt had foundered on substantial differences of opinion and on macroeconomic technicalities. This time, there was enough flexibility to secure an agreement that, despite being a compromise, has the potential to help Greece exit the crisis that has devastated its economy, upset its political system, and churned up social turmoil.


“Greece could probably not have expected more from the agreement, which gives Greece some breathing space to effect structural reforms that should have been implemented at the beginning of the crisis in 2010,” says Dimitris Sotiropoulos, a political science professor at the University of Athens. “This will also allow the government to adopt measures that will help the rising number of unemployed Greeks.”

The formula for reducing Greek debt has several parts, which include a 1 percentage point reduction on the interest rates charged by other euro zone members to lend to Greece as part of the country’s first bailout. This means Athens will have an annual servicing rate of just 0.69 percent for the initial loans from its partners—substantially cheaper than the rate some of the rescuers must pay for their own borrowings. Euro zone finance ministers also decided to extend by 15 years the maturities on loans from Greece’s second bailout and to defer interest payments for 10 years. The European Central Bank will return to Greece any profits it makes from Greek bonds it purchased on the secondary market in 2010 and 2011. Greece will embark on an effort to buy back privately held Greek bonds at substantially reduced prices; the goal is to withdraw them from the market......................................................

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