EU FINANCE MINISTERS have given their approval for Greece to receive a second bailout worth €130 billion, following the country’s bond swap last week.
The unprecedented bond swap deal, which involved an overwhelming majority of Greek bondholders, will see the country knock over €100 billion off its national debt and also opened the door for EU ministers to approve a €130 billion package to Athens.
Jean-Claude Juncker, the chairman of the Eurogroup, said the package will be committed by the euro area and the IMF until 2014. The bailout deal will be formally signed into effect on Wednesday.
In 2010, Greece received a €110 billion bailout package. Germany has not ruled out the possibility of a third bailout being required for Greece.
Spain raises concerns
Meanwhile, Spain has announced that it will not meet the deficit goal agreed with the EU for this year. The country was supposed to cut its deficit to 4.4 per cent but said that a significantly higher 5.8 per cent is more likely.
This morning, EU leaders indicated that Spain would be given flexibility regarding its deficit, allowing the country to inflate it to 5.3 per cent.
Juncker said it was “of the utmost importance” that Spain brings its deficit down to below 3 percent of GDP — and back in line with European Union rules — by 2013.
Many economists have warned that cutting spending too quickly could do more harm than good in a country like Spain. Spain’s debt level is below the eurozone average, but unemployment is running at a record high and a shaky housing market risks piling huge losses on an already weak banking system.
However, ahead of the meeting, several ministers had worried that easing the pressure on Madrid risked undermining almost two years of work by the currency union’s leaders to tighten rules against overspending. The currency union has chosen tough austerity as its main tool in fighting off a worsening debt crisis, hoping that it will convince investors to lend to struggling countries like Italy and Spain.
But Olli Rehn, the EU’s economic affairs commissioner who is in charge of policing the bloc’s debt and deficit limits, said giving Spain a bit more leeway this year did not violate the new rules.
“The Stability and Growth Pact is not stupid,” Rehn said.
Additional reporting by the AP