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Eurozone ministers agree to Greece bailout deal

21. February 2012. | 04:27

Source: Emg.rs, Reuters, Bloomberg, newsnow.co.uk

Euro zone finance ministers struck a deal early on Tuesday for a second bailout programme for Greece that includes new financing of 130 billion euros and aims to cut Greece's debt to 121 percent of GDP by 2020, two EU officials said.

Greece has secured its crucial bailout after a marathon session of talks that dragged into the early morning in Brussels, drawing a line under months of uncertainty about the deal that have shaken the eurozone.

In exchange for the $170 billion rescue fund, the Greek government has agreed to reduce national debt to 120.5 per cent of GDP by 2020.

The euro has jumped in Tokyo trade on news the deal has finally been sealed.

While the agreement puts the country on a more stable financial footing and keeps it inside the 17-country eurozone, a turnaround could nevertheless take as long as a decade.

The bleak outlook and harsh austerity measures brought thousands of Greeks onto the streets in violent protests in which teargas was fired and buildings burned and looted.

Sceptics question whether a new Greek government will stick to the deeply unpopular program after elections due in April.

"The financial volume (of the Greek package) is 130 billion euros and debt-to-GDP (will be) 121 percent. Now it's down to work on the statement," one official involved in the negotiations told Reuters.

Another official confirmed that the financing would total 130 billion euros with the aim of reducing Greece's debts from around 160 percent of GDP now to 121 percent by 2020, but cautioned that drafting of the deal was only just starting.

Private sector holders of Greek debt are expected to take losses of up to 53.5 percent on the nominal value of their bonds as part of a debt exchange that will reduce Greece's debts by around 100 billion euros.

Previously they were expected to take a 50 percent nominal writedown, which equated to around a 70 percent loss on the net present value of the bonds.

The debt swap will be financed in part via "sweeteners" that will be paid to the private bondholders, who will also get 30-year bonds in exchange for the bonds they give up.

The package is the second emergency loan agreement reached for Greece, which received a 110 billion euro bailout, made up of bilateral loans from euro zone governments and the IMF, in May 2010.

Dollar Advances as Greek bailout concern boosts safety demand

The dollar gained versus most major peers as concern that a meeting of euro-area finance ministers will struggle to agree on terms for Greece’s second bailout spurred investor demand for haven currencies.

The 17-nation euro fell for the first time in four days against the yen as a majority of the currency bloc’s governments pushed for bondholders to accept greater losses, a European diplomat said. The Australian dollar weakened after the Reserve Bank said in minutes of its Feb. 7 meeting that there is scope to ease policy.

“Markets aren’t optimistic about the outlook for the euro, and the fact that they are easily swung by headlines emphasizes deep-rooted concern,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp., a currency margin company. “The dollar is entering a rising trend.”

The dollar advanced 0.2 percent to $1.3223 per euro as of 10:55 a.m. in Tokyo. It rose 0.1 percent to 79.74 yen. The euro dipped 0.1 percent to 105.40 yen.

European finance ministers have good prospects for reaching a deal on a second Greek rescue package, though more talks are necessary, the diplomat said today on condition of anonymity because the talks are ongoing. Several rounds of talks have taken place between Greece and the Institute of International Finance, which is leading the debt talks on behalf of private creditors, the diplomat said.

Central Bank Participation

The officials are weighing the terms of new loans to Greece and a possible contribution by central banks at a meeting in Brussels. They also aim to start a bond exchange with private investors meant to stave off a Greek bankruptcy next month. No time was set for a press conference after the meeting.

The euro has slid 4.6 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar has gained 4.5 percent, while the yen has weakened 1.8 percent.

The Australian dollar dropped against 14 of its 16 major counterparts. The RBA’s board “judged that if demand conditions were to weaken materially, the inflation outlook would provide scope for a further easing in monetary policy,” according to minutes released today of this month’s meeting.

The central bank unexpectedly kept its benchmark interest rate unchanged at 4.25 percent at the gathering.

“Effectively the RBA has maintained an easing bias,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “The Aussie is really struggling to strengthen on the back of that.”

Australia’s currency fell 0.2 percent to $1.0730. New Zealand’s dollar lost 0.1 percent to 83.87 U.S. cents.

Markets boosted by Greek hope

Improving prospects of Greece getting its second bailout, thus keeping the euro zone intact for the time being, boosted international stock markets yesterday.

A move by China to limit the amount of money its banks must hold in reserve — indicating that the institutions may begin lending more and boost the country’s economy, as a result — also helped investor sentiment.

Entering yesterday’s crunch eurozone finance minister talks in Brussels, optimism was in the air with the likes of IMF chief Christine Lagarde and Greek finance minister Evangelos Venizelos talking up the chances of solidifying the eurozone and saving Greece from default through its second bailout in two years. Ireland’s junior finance minister Brian Hayes said it was time to get the issue "over the line", adding he was confident that would happen.

All major European bourses were up, yesterday — London’s FTSE and Paris’s CAC-40 by nearly 1%; Frankfurt, Milan and Madrid by closer to 2%.

In Dublin, the ISEQ closed up by nearly 1%, driven largely by strong showings from building materials stocks CRH, Kingspan and Grafton. Elsewhere, Bank of Ireland was also up by over 4% on the back of a positive enough set of financial results.

Merrion Pharmaceuticals shed 12.5%, while rising oil prices pulled Ryanair down by 2.4%, and there were contrasting fortunes in the exploration world with Petroceltic up by 17%, Petroneft down by 11%, Ormonde Mining and Tullow Oil up strongly but Providence Resources down marginally.


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20. February - 26. February 2012.