After months of wrangling and several missed deadlines by Greece, euro zone finance ministers finally reached accord on a new bailout for Athens that included additional austerity measures and cuts for private bondholders.
Reuters reported that a 13-hour session of talks resulted Tuesday in an agreement that would impose additional austerity measures on Greece, already five years into a deep recession, and compel private bondholders to accept additional losses. The bailout will allow Greece to avoid missing a critical bond repayment on March 20, which would trigger a default.
Still, the deal is regarded with skepticism as to whether it will actually allow Greece to avoid default in the long run but only postpone the inevitable. A report by the troika, the group made up of the European Union (EU), International Monetary Fund (IMF) and European Central Bank (ECB), said that Greece would need additional help, while its status would remain “accident prone” in years to come.
Elements of the agreement include a distribution by the ECB of profits from its purchases of Greek bonds to other nations, which could the use the funds to contribute to Greece’s rescue. The ECB had proposed such a measure last week. (The ECB also said Tuesday in a BBC report that, for the first time since August, it has bought no additional bonds from euro zone governments. In an effort to keep the cost of borrowing down for countries such as Spain, Italy and Portugal, the ECB has been buying their bonds in an ongoing purchase program.)
Private bondholders will also be obliged to accept losses of 53.5% on their holdings of Greek debt, which amounts to a loss of approximately 70% on its net present value. While some bondholders are expected to resist, Greece has said it will pass legislation to compel their compliance.
In addition, further cuts in pensions, pay and jobs, opposed by the Greek people, are expected to be protested yet again on Wednesday. Elections in April could cause problems for those provisions in the agreement since the parties supporting them are now highly unpopular and could be voted out of office.
There will also be heightened monitoring of Greek implementation of reform—a measure bargained for by Dutch Finance Minister Jan Kees de Jager, who has been one of Greece’s loudest critics.
There was little celebration in Greece at the news. Vassilis Korkidis, head of the Greek Commerce Confederation, was quoted commenting, “We sowed the wind, now we reap the whirlwind. The new bailout is selling us time and hope at a very high price, while it doggedly continues to impose harsh austerity measures that keep us in a long and deep recession.”