Finance ministers of euro zone nations reached a compromise on Sunday night on involving private creditors in a second multi-billion euro financial rescue package for debt-ridden Greece.
However, they deferred a decision on the immediate release of 12 billion euros to prevent a debt default by Greece until their heads of state and government meet on Thursday.
There is a basic understanding among the finance ministers that private investors should be involved in sharing the burden of the second bailout of Greece, estimated to be between 90 billion euros and 120 billion euros, but this must be entirely on a "voluntary" basis, Jean-Claude Juncker, the
chairman of the euro group, said after the opening day of discussions in Luxembourg.
The ministers agreed that no pressure should be brought to bear on private investors, he stressed. Their decision is seen as a setback for German finance Minister Wolfgang Schaeuble, who had pressed for "binding" involvement by private bond holders such as banks, investment funds and insurers in the proposed rescue package.
Germany had initially proposed that the private bond holders should be forced to exchange their Greek bonds, which are maturing, for new bonds having a maturity of seven years as part of a "soft rescheduling" of Greece's debts.
Germany argued that this will give Greece more time to pay back its debts and to bring its finances under control. However, the German plan was dropped following strong opposition from France, which expressed fears that its banks with huge exposure to Greek debts will lose heavily if they
were forced to take part in debt rescheduling.
Juncker said the fifth tranche of 12 billion euros from the first rescue package of 110 billion euros (USD 159 billion) pledged a year ago will be released only after the Greek government passes a new law on more austerity measures to stabilise the economy at the end of this month.
However, a final decision on releasing the amount will be taken by the euro zone leaders, who are holding a summit in Brussels on Thursday and Friday, he told journalists. They will also discuss the proposed second rescue package for their debt-stricken partner.
Schaeuble called upon his colleagues to speed up the release of the fifth tranche.
"If the payment cannot be made on the grounds that Greece has not fulfilled the conditions, then Greece will face a grave situation and therefore the matter is very critical," he said.
He pleaded for giving Greece more time to stabilise its economy so that it will be in a position to raise capital from the financial markets. "Everything will depend on continued efforts by the Greek government to reduce budget deficit through drastic spending cuts and increasing revenue through privatisation and other measures. If Greece becomes insolvent, its consequences for the global economy will be worse than the collapse of US investment bank Lehman Brothers in 2008," Schaeuble warned.
The fifth tranche of the EU-IMF financial rescue fund pledged in May last year will also ensure that Greece will remain solvent till September, thereby giving more time for the EU leaders to sort out their differences over the second rescue package.
Schaeuble called upon the private creditors to make a "constructive contribution" toward rescuing Greece from bankruptcy.
"It is in our common interest that we preserve the stability of the euro and make sure that the risks are shouldered not by the taxpayers alone," he said.
Greece is represented in the two-day meeting by the new Finance Minister Evangelos Venizelos, who replaced George Papaconstantinou in a Cabinet reshuffle by embattled Prime Minister George Papandreou on Friday as he struggled to restore his authority and win public support for his
government's reforms.
The Greek government’s tough austerity measures in return for the EU-IMF bailout have sparked nationwide strikes, protest demonstrations and riots in the capital.
"We can achieve our target through the efforts of our people and with the support of our partners in the EU," Venizelos said.
Schaeuble said in a TV interview earlier that he backed the compromise between Chancellor Angela Merkel and French President Nicolas Sarkozy on Friday to involve private creditors in the planned second financial bailout of Greece on a "voluntary" basis.
He said Germany dropped its demand to force private investors in the planned rescue to avoid turbulence in financial markets.
"All decisions on involving private investors will betaken in agreement with the European Central Bank," he said.
source-moneycontrol
steven
management trainee-fundamental analyst
DENIP Consultants Pvt Ltd
No comments:
Post a Comment