Saving the Common Currency What Was Decided at the Euro-Zone Crisis Summit
At the July 21 emergency summit on the euro crisis, European leaders passed resolutions which will have a lasting impact on how euro-zone countries deal with indebted countries. SPIEGEL ONLINE presents an overview of the deal reached.
Last Thursday, euro-zone leaders met in Brussels for an emergency summit on the euro crisis, where they agreed on a second bailout for Greece. SPIEGEL ONLINE has prepared an overview of the resolutions reached:
Lower Interest Rates and Extended Maturities
Greece will receive additional loans through mid-2014 in the amount of 109 billion ($157 billion). This official funding from the International Monetary Fund (IMF) and the European Financial Stability Facility (EFSF) will be divided into two parts. Some 54 billion will go directly to the Greek government, while the remaining 55 billion will serve to guarantee the voluntary participation of private-sector investors.
Interest rates on the loans to Greece will be lowered from 4.5 percent to approximately 3.5 percent. Maturities of future EFSF loans -- which are the intended vehicle for the next disbursement of loans for Greece -- will be extended from 7.5 to at least 15 years. These changes in interest rates and maturities will also apply to Ireland and Portugal, which have also been bailed out by the EU and IMF.
Voluntary Contribution from the Private Sector
Banks and private investors are expected to take part in the bailout on a voluntary basis. Creditors can exchange Greek bonds for new securities with longer maturities. They can accept a discount by purchasing the new securities at 80 percent of their par value (their stated value), or they can accept future lower interest rates. The euro rescue fund will provide collateral for the new securities. Alternately, old bonds can be sold to the EFSF at a discounted rate.
The private sector is expected to contribute some 50 billion in total through mid-2014. Of this, 37 billion will likely come from bond swaps while 12.6 billion is anticipated to come from bond buybacks.
The involvement by private-sector creditors is an initiative uniquely planned to help Greece, and will not apply to Ireland or Portugal.
Increased Security Against Future Crises
The EFSF and the European Stability Mechanism which will replace it from 2013 will have the option of buying up debt issued by crisis-hit countries from private creditors. Previously only the European Central Bank has played this role.
Precautionary lines of credit will be set up for euro-zone countries, which they can turn to in instances of need. Additionally, a country's banking sector will be supported through credit lines to the affected government.
Support for Growth and Investment in Greece
A development plan is intended to help make the ailing economy competitive again.