Updated July 22, 2011 10:24:15
Related Story: Euro shares surge on Greek deal
Related Story: EU Greek bailout agreement close
Eurozone leaders have agreed on a new Greek bailout worth nearly 159 billion euros ($211 billion) and including the participation of the private sector, according to a final summit declaration issued in Brussels this morning.
The aid from European governments and the IMF will total 109 billion euros, while the private sector will contribute 49.6 billion euros.
The net contribution from banks and other investors is estimated at 37 billion euros with an additional 12.6 billion euros from a debt buy-back program.
To ease Greece's debt repayments on its loans, the summit agreed to extend them from 7.5 years to between 15 and 30 years in some cases, and at a rate of 3.5 per cent, down from 4.5 per cent.
Figures released by the leaders after the summit said the measures would reduce Greece's debt by 26 billion euros - equal to 12 per cent of its gross domestic product - by the end of 2014.
Greece and Ireland have long advocated easier loan conditions from the eurozone's crisis fund, the European Financial Stability Facility (EFSF), arguing the terms were too strict for them to clean up their finances.
The draft summit statement showed the EFSF would be able to lend to states on a precautionary basis instead of waiting until they are shut out of market funding, and to recapitalise banks via loans to governments, even if they are not under an EU/IMF assistance program.
"To improve the effectiveness of the EFSF and address contagion, we agree to increase the flexibility of the EFSF," it said, listing those three key steps, all of which Germany had previously blocked.
The proposed expansion of the EFSF's role would have to be ratified by national parliaments, and could fall foul of critics in Germany, the Netherlands and Finland.
Dutch Finance Minister Jan Kees de Jager said a short-term or selective default for Greece, long vehemently opposed by the European Central Bank, was now a possibility.
"The demand to prevent a selective default has been removed," he told the Dutch parliament.
Euro, stocks rally
The euro and European stocks, which had fallen on reports of a possible selective default, rallied sharply on news of the draft conclusions.
The risk premium investors demand to hold peripheral eurozone government bonds rather than benchmark German Bunds fell.
Senior European bankers were present in the corridors of the Brussels summit but not at the table, officials said.
They included Baudouin Prot of BNP Paribas, the French bank with the biggest exposure to Greek debt, and Deutsche Bank chief executive Josef Ackermann, chairman of the International Institute of Finance, a banking lobby that has led talks among bankers.
Top Greek bankers were also present.
Leaders said their twin aims were to make Greece's debt more sustainable and prevent contagion from poisoning access to the bond market for other eurozone states.
Worried about the impact on financial markets and wary of angering their own taxpayers, eurozone governments have struggled for weeks to agree on major aspects of the plan, especially a contribution by private sector investors.
The head of the European Commission, Jose Manuel Barroso, warned earlier this week the global economy would suffer if Europe could not summon the political will to act decisively.
The summit's resolutions are very unlikely to mark a complete resolution of the crisis, as Ms Merkel herself acknowledged earlier this week.
A second bailout may simply keep Greece afloat for a number of months before a tougher decision has to be made on writing off more of its debt.
Many economists believe the only way out of the eurozone's debt crisis in the long run may be closer integration of national fiscal policies such as a joint eurozone guarantee for countries' bonds, or issuance of a joint eurozone bond to finance all countries.
AFP/Reuters
Eurozone approves 159 billion euro Greek bailout - ABC News (Australian Broadcasting Corporation)
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