It is a partial punishment for Greece.
Euro zone countries have conceded that a ‘controlled’ default of its economy is the only way to save the single currency. It comes after a first bailout worth 110 billion euros failed to stop the rot.
But the new rescue will ease market pressure on Greece and create the embryo of a European Monetary Fund to protect other weak euro zone nations.
An extra 109 billion euros is being given to the Greeks, lower interest rates on the borrowing and crucially, more time for Athens to pay it back – up to 30 years with a 10 year grace period.
“We needed a credible package, we have a credible package,” said European Commission President José Manuel Barroso. “It deals with both the concerns of the markets and of citizens. It responds also to the concerns of all member states of the euro area”.
To cushion the limited default and prevent speculation on Greek, Irish and Portuguese debt, leaders made progress on the creation of a European emergency aid fund, under discussion since March.
The 440 billion-euro European Financial Stability Facility will dedicate 20 billion euros to recapitalise Greek banks. A further 35 billion euros will be earmarked to boost collateral while Greek debt is in default.
European Central Bank President Jean-Claude Trichet said: “The governments are supporting the new programme for Greece with a voluntary contribution of the private sector.”
The intervention of private creditors was the most sensitive issue under discussion. It is estimated that private sector bondholders will contribute as much as 50 billion euros by mid-2014 – the total figure rising to 106 billion euros by 2019.
Greek Prime Minister George Papandreou said:“We now have a programme and a package of decisions which create a sustainable path for Greece…..and this, in the end, will not only mean the funding of a programme but it will also mean the lightening of the burden on the Greek people”.
Finally, leaders pledged to launch a ‘Marshall Plan’ to revive Greece’s economy.
Athens should get swift access to the further 15 billion euros it has been earmarked in EU development funds The EU’s contribution to projects in Greece will also be raised.
The idea of all these measures is to cut Greece’s debt by 26 billion euros so that the country can finally see the light at the end of the tunnel.