Breathing space but no relaxing of austerity, say Greeks
Greece has won a "large breathing space" thanks to a new €109bn rescue deal that allows for extending a longer payment period for all government debt due to be repaid before 2020, its finance minister said last night.
"This arrangement will bring significant benefits to the real economy but it doesn't mean we can relax our efforts to implement the current reform programme," Evangelos Venizelos told reporters yesterday.
Mr Venizelos gave few details of the terms of Greece's latest bailout but made it clear that about 90pc of €135bn in debt falling due over the next eight years would be exchanged for 30-year bonds.
He dismissed concerns that Greece was poised for a temporary default as "irrelevant" given the backing of European institutions for the bailout plan.
As part of Thursday's package, the eurozone leaders made detailed provisions for limiting the damage of a temporary default, the first in western Europe for more than 40 years.
Yesterday Carlos Costa, Bank of Portugal governor, said the possibility of a selective default by Portugal was "out of the question" and the country was implementing its bailout terms in a strict manner.
Mr Costa, who is also a European Central Bank Governing Council member, said the decisions taken by eurozone leaders at Thursday's summit offer cause for optimism.
However, doubts remain about whether the plan went far enough to assure not only Greece's debt sustainability but that of Ireland, Portugal and other heavily indebted nations.
The package yielded "more than expected but not enough to make us sleep comfortably", Barclays' economists said. They were disappointed that European leaders did not agree to expand the eurozone rescue fund.
The wider EFSF role is designed to prevent bigger eurozone states such as Spain and Italy from being shut out of markets because of fears of a weaker country defaulting.
German Chancellor Angela Merkel defended the agreement. "I want Europe to come out of the crisis stronger than it went in," she said. "It is our historic task to protect the euro. Europe without the euro is unthinkable."
French President Nicolas Sarkozy said the measures would reduce Greece's debt by 24 percentage points of gross domestic product from about 150pc.
However, that still leaves a colossal debt for an economy deep in recession with no recourse to a competitive devaluation.
In Brussels, European officials welcomed the agreement as a decisive response to the crisis. Yet they struggled to explain many of its components.