Senior eurozone officials have agreed in principle on a new three-year bailout plan for Greece, a source close to the negotiations said yesterday. A final deal will have to wait for a meeting of eurezone finance ministers due to take place later this month.
The deal now being proposed is essentially an extension of the current Greek bailout. It will run till mid 2014 with increased external funding, deeper austerity and some buy-in expected from banks.
An official announcement is expected today. The new agreement is unlikely to completely end the uncertainty gripping the market however -- because a final deal won't be agreed until eurozone finance ministers meet on June 20.
The new package is understood to have been signed off in principal by Europe's Economic and Financial Committee (EFC), a body made up of senior officials of the 17-nation currency zone.
The committee was meeting in Vienna this week.
The new deal amounts to a second, smaller, bailout programme for Greece, which will effectively supersede last year's €110bn deal.
Sources say it will involve some participation of private-sector investors, but to a degree so limited it will avoid triggering a default, the source said. That suggests that, instead of changing the terms of the Greek debt, lenders will be asked to roll over any existing loans. That would cut the amount of new money Greece needs because the bailout funds would not be hit with the cost of financing debt repayments.
Details of how the bank element of the deal will work and where funding will come from remain to be worked out. Those details will be in place in time for the June 20 meeting of euro zone finance ministers, the source said.
He declined to comment on figures, but said the programme would cover Greece's funding needs on the assumption that it could not return to private capital markets in 2011 or 2012.
The original bailout envisaged Athens raising €27bn on the markets next year and €38bn in 2012.
A troika of EU, European Central Bank and International Monetary Fund inspectors has been working with the Greek government for weeks on a detailed plan of additional spending cuts, revenue increases and privatisations to get Athens back on track after it missed fiscal targets due to a revenue shortfall.
The source said the programme would involve detailed commitments by Greece on the governance of a new national wealth agency and the timing of specific privatisations, but it would stop short of intrusive international supervision of the agency. (Reuters)