“The net contribution of the private sector is estimated at 37 billion euros”, according to the statement published at the end of the meeting held in Brussels.
A buyback program will contribute 12.6 billion, bringing the total to 50 billion euros for 2011-2014. During 2011-2019, the total net private sector contribution will be 106 billion euros.
“The safeguard quality will be supported to allow their further use by banks in Greece to access the Eurosystem liquidity operations”, the release says.
In addition, European Financial Stability Facility, the saving Member Fund for financial problems of the euro area countries, will provide Greece with long-term loans at lower interest rates.
Interest will be lowered to about 3.5% and maturity funding will be extended from 7.5 years to at least 15 years, up to 30 years.
“We will provide adequate resources to recapitalize Greek banks if necessary”, the release says.
Euro zone leaders agreed on Thursday to a second package of 109 billion euros to support Greece, the amount including a contribution of 37 billion euros from the private sector, informs Reuters.
The agreement of the European leaders, with private sector involvement, is a victory for German Chancellor Angela Merkel, the British newspaper Financial Times notes, but this victory will almost certainly lead to the first entry in default on certain bonds in the euro area.
Reducing interest rates around 3.5%, 1-2 percentage points below current levels and extending the repayment of the loans will benefit all three countries currently covered by financial aid packages, namely Greece, Ireland and Portugal, the European officials said.
In addition, the euro zone leaders have given the European Financial Stability Facility, with funds of 440 billion, new powers to help countries that are not currently included in foreign aid programs. These tasks include providing preventive lines of credit and recapitalization of banks with problems in the euro area. These changes are equivalent to the establishment of a European Monetary Fund, said the French President, Nicolas Sarkozy.
French President confirmed that private investors will voluntarily change short-term debt of the Greek state for 30 year titles with an interest of 4.5%. Such a measure would reduce Greece’s public debt to GDP by 12 percentage points.
However, European Financial Stability Facility will be able to buy bonds on the primary and secondary markets. The latter will probably be strictly restricted and at the discretion of the European Central Bank.
The European Fund could be used for a bond exchange program to encourage owners of Greek titles due in the next eight years to exchange them to others with a maturity of up to 30 years.