Under the terms of this latest bailout, 160 billion euros will be freed up for Greece by 2014, with 109 billion euros – the lion’s share – coming from the EU and IMF. But private lenders will take a hit for the first time as 50 billion euros of the bailout will come from the private sector – although this sum is seen as much less than it could have been.
Creditors will be able to voluntarily swap their Greek bonds for longer maturities at lower interest rates. But they are unlikely to get back all the money they lent and this could put Greece in what is termed “selective default”.
With this in mind, French President Nicolas Sarkozy said euro zone nations will provide credit guarantees for Greek banks, to make sure they can still obtain liquidity from the European Central Bank.
The terms on bailout loans have also been relaxed.
Interest will be cut to around 3.5 percent from a maximum of 5.8 percent now.
Maturities will be extended from 7.5 years to 15.