Eurozone debt crisis deal: main points
Published 27/10/2011 | 10:44
EUROZONE leaders have struck a deal with private banks and insurers for them to accept a 50pc loss on holdings of Greek government bonds as part of a plan to lower Greece's debt burden. Here are the main points:
More firepower to bailout fund
• The €440bn European Financial Stability Facility (EFSF) will have between €250bn and €275bn available after providing aid to Greece, Ireland and Portugal.
• The eurozone leader say the fund's firepower could be quadrupled to around €1 trillion using a combination of a special purpose investment vehicle and a debt-insurance scheme.
• A state-sponsored insurance scheme would ensure a buyer of, for example, Italian bonds, would get a payout if Italy were to default - the size payout is still to be negotiated but there have been suggestions of the first 20pc of any loss. Eurozone leaders this guarantee will encourage otherwise reluctant investors to buy government bonds.
• Setting up a special purpose investment vehicle should give foreign investors a less risky way to buy eurozone debt.
• Leaders will seek further cooperation with the IMF to further enhance the rescue fund's resources.
• The firepower of the fund - designed to convince markets that the eurozone can cope with potential borrowing problems in Spain and Italy - can only be finalised after finance ministers talk to investors - such as sovereign wealth funds in China and the Middle East - to judge their appetite for European debt.
Reducing Greek debt
• Private banks and insurers have agreed to voluntarily accept a nominal 50pc cut in their Greek government bond investments. It is hoped this will help reduce Greece's debt burden by €100bn, cutting its debts from 160pc of GDP now to 120pc of GDP by 2020.
• At the same time, the eurozone will offer €30bn of "credit enhancements" or sweetners to the private sector.
• They hope to raise confidence in the banking sector by (i) facilitating access to term-funding through a co-ordinated approach at EU level and (ii) the increase in the capital position of banks to 9pc of Core Tier 1 by the end of June 2012. National supervisors must ensure that banks' recapitalisation plans do not lead to excess deleveraging.
• The aim is to complete negotiations on the package by the end of the year, so that Greece has a full, second financial aid programme in place before 2012. The value of the second Greek bailout package could be €130bn - up from €109bn when a deal was last struck in July.
Stricter policing of euro fund
• A significant strengthening of economic and fiscal coordination and surveillance. A set of very specific measures, going beyond and above the recently adopted package on economic governance, will be put in place.
• A mandate to the President of the European Council, in close collaboration with the President of the Commission and the President of the Eurogroup, to identify possible steps to strengthen the economic union, including exploring the possibility of limited Treaty changes. An interim report will be presented in December 2011. A report on how to implement the agreed measures will be finalised by March 2012.