After more than 12 hours of talks, the countries that use the euro reached an agreement early Tuesday to hand Greece euro 130 billion ($170 billion) in extra bailout loans to save it from a potentially disastrous default next month, an European Union diplomat said, according to The Huff Post.
The deal should help ward off the specter of an imminent Greek default, which threatened to occur as early as next month and to throw global markets into turmoil.
“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 deal – details of which were still being worked out by European finance ministers in an all-night session in Brussels – was expected to bring Greece’s debt down to 120.5 percent of gross domestic product by 2020, according to the official.
That’s around the maximum that the International Monetary Fund and the eurozone considered sustainable.
Despite the heavy demands being made of it, including the relinquishment of some fiscal and economic sovereignty, Greece welcomed the bailout package, which it needs most urgently to make a bond repayment that comes due next month, reports Los Angeles Times.
Without the rescue funds, Athens would be forced to declare bankruptcy.
“The Greek people [are] sending Europe the message that they have, and they will, make the necessary sacrifices in order for our country to regain its place within the European family,” Evangelos Venizelos, Greece’s finance minister, said in a statement before the marathon negotiating session.
“For Greeks, this is a matter of national dignity and a national strategic choice.”
Every government in the currency union will also have to approve the package. Northern creditors, such as Germany, had pressed for even tougher measures to be placed on Greece, but Finance Minister Wolfgang Schaeuble said he was very confident a majority in parliament would approve the package.
Last week, a new report from Greece’s debt inspectors indicated that the country’s debt would still be close to 129 percent of GDP by the end of the decade, despite massive new spending cuts planned by Athens and a tentative euro100 billion debt relief deal with private investors.
The euro surged as the news broke, climbing 0.7 percent to $1.328 within minutes. While much depended on the details of the deal, a final agreement on the bailout for Greece will take some pressure off the 17-country currency union, which has been battling a serious debt crisis for two years.
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, says The New York Times.
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.
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.
The lower debt level also suggested that the ECB agreed to forego some profits on its Greek bondholdings to help close the funding gap in the new bailout package. Analysts estimate that the central bank owns between euro50 billion and euro55 billion in Greek bonds, which it bought at a discount.