Second Greek rescue
July 22, 2011
The world's stock markets breathed a sigh of relief on Friday, rising to a two-week high after the news of a new Greek rescue package sunk in.
When trading opened in Athens shares jumped by 3.38 percent, while Frankfurt's DAX market grew nearly half a percent and the main Paris stock market CAC also rose by nearly one percent.
Europe's key players opted on Thursday to lend insolvent Greece an additional 109 billion euros ($157 billion) while at the same time securing a pledge that the private financial sector would make its own contribution of 37 billion euros.
Athens described the deal, struck during an emergency summit in Brussels on Thursday, as a "great relief for the Greek economy."
"Greek banks are guaranteed and assured," Finance Minister Evangelos Venizelos told a news conference in Athens.
Averting crisis
Meanwhile, European Union President Herman van Rompuy said after the summit that the bloc had reached three important decisions which had unanimous support within eurozone.
"We improved the Greek debt sustainability, we took measures to stop the risk of contagion, and finally, we committed to improve the eurozone's crisis management," Rompuy said in the opening moments of his official address.
The EU president said that the instability of the Greek economy, coupled with the resultant jitters on international markets, ultimately could have threatened the single European currency and the economic recovery in Europe and the wider world.
Convening this meeting focused the minds and accelerated finding a solution. I could not allow a difficult situation to become a dangerous one," Rompuy said.
The nuts and bolts
Greece's second aid package, including private contributions, will total at least 146 billion euros. The package comes in addition to the 110 billion euros Athens was promised as part of its first bailout in 2010.
The program will include lower interest rates and extended maturities as well as the establishment of task force to create a strategy for economic growth in Greece, according to a statement released by the leaders after the summit.
European Central Bank chief Jean-Claude Trichet reacted coolly to concerns that even voluntary participation by the private sector could provoke rating agencies to downgrade Greece's credit worthiness.
"I don't think experts consider that what has been done would trigger a credit event," Trichet said after the summit.
'European package'
The second bailout should help Greece slash its debt by 26 billion euros by 2014, according to Greek Prime Minister George Papandreou. That amounts to 12 percent of the nation's Gross Domestic Product (GDP). Greece currently has a total of 350 billion euros in public debt.
"The only thing we're asking for is the right to make deep changes in our country to make our country a viable one, one of growth and jobs creations," Papandreou said. "This is a European success, a European package."
German Chancellor Angela Merkel and French President Nicolas Sarkozy laid the groundwork for Thursday's breakthrough after the two eurozone heavyweights came to an agreement in Berlin on Wednesday.
Merkel, however, warned that the road to recovery for Greece and the broader eurozone will be a long one.
"I have always said that there won't be a spectacular silver bullet, rather Greece's way back to stability and competitiveness must be a controlled and manageable process," Merkel said. "I am confident, today, that we can do that."
Sarkozy said that Europe should view the debt crisis as an opportunity to deepen the economic integration among the 17 eurozone member states.
"Our ambition is to seize the Greek crisis to make a quantum leap in eurozone governance," Sarkozy said.
Author: Spencer Kimball, Mark Hallam, Charlotte Chelsom-Pill (AFP, Reuters, dpa)
Editor: Ben Knight