Eurozone, International Monetary Fund Agreed to New Greek Debt Deal

Eurozone finance ministers signed a deal on 27 November 2012 with International Monetary Fund (IMF) to reduce over 40 billion Euros or 52 billion US Dollar massive debt burden of Greece by 2020, thus freeing long-blocked loans.

This decision would help in reducing the lack of confidence in Europe as well as Greece, thus strengthening buoyancy in the economy.

The major elements of the agreement are as follows:

•    Greece is responsible for reaching the surplus target of 4.55 percent GDP in 2016 only, instead of 2014 so that the economy could be given a better chance of growth once again.
•    Greece would be organising debt buy-back of the bonds which are held by its private investors. This buy-back should be held by 12 December 2012. The amount was not announced but 35 cents a euro might be under consideration.
Once this buy-back amount yielded positive results, IMF would come into the picture to join program. Eurozone thereafter would consider following:
a)    There will be a cut in the interest rate on the loans to Greece by 100 basis points under first bailout, thus bringing down this rate to 50 basis points over Euribor or the financing costs. Portugal and Ireland would not cut interest because they too receive the aid.
b)    Temporary bailout fund of Eurozone- the EFSF will bring down the fees to Greece by 10 basis points which is charged on loans.
c)    Maturities of the loan which are given to Greece by EFSF and bilateral would be extended by a time period of 15 years.
d)    Greece need not pay the interest on loans received from EFSF for a time period of 10 years.
e)    Profits coming from the Greek bond portfolio of European Central Bank which were acquired during the Securities Market Programme (SMP) of the bank would be passed on to Greece for debt servicing from 2013 budget year onwards.
f)    Eurozone countries need to keep in mind the measures as well as aids, which include reducing the interest rate further on bilateral loans to Greece in order to help Athens achieve debt sustainability. This would be done when Greece achieves primary surplus and fulfills the conditions of the reform program.
g)    The debt-to-GDP ratio of Greece should fall to 175 percent in 2016 till 124 percent in 2020. Thereafter the target is 110 percent in 2022.
h)    Eurozone countries would keep financing Greece till it achieves market access, provided that Greece remains firm to the agreed reform program.
i)    Greece will be receiving aid of 34.4 billion Euros in December 2012. 10.6 billion Euros out of this would be used for budget financing. 23.8 billion Euros would go for recapitalization of banks. Furthermore, 9.3 billion Euros would be given out to Greece in 3 sub-tranches in first quarter of 2013, provided Athens meet reform landmarks as set by the lenders. Formal decision regarding the disbursement of this money would be taken on 13 December 2012 provided that the national procedures in Eurozone nations are accomplished.

What are Eurozone Nations?

Eurozone is also known as the Euro Area. It is the EMU or Economic and Monetary Union of total 17 European Union (EU) states which have mutually agreed to espouse Euro as the common currency as well as legal tender. The nations which come under Eurozone include Greece, Ireland, Austria, Belgium, France, Germany, Cyprus, Estonia, Luxembourg, Malta, Slovenia, Finland, the Netherlands, Portugal, Slovakia, Spain and Italy.