The decisions of the Euro Summit in Brussels
Brussels – After months of negotiations, the Eurogroup dared the liberation: With a new rescue package for Greece of 109 billion euros, a bank contribution of 37 billion euros by 2014 and loan commitments for other problem children such as Italy and Spain, the debt crisis is to be contained. The special summit on Thursday in Brussels agreed on a surprisingly far-reaching plan. Questions and answers on the decisions of the Euro Summit in Brussels.
News / Finance
What did the heads of state and government of the euro countries decide at their summit in Brussels?
Greece gets additional help over 109 billion euros for the coming years.
Who participates in it?
The euro countries will be the lion’s share. Their loans are processed via the EFSF euro bailout. He lays down his own bonds, similar to Ireland and Portugal. The International Monetary Fund (IMF) is also to be involved. The private sector also wants to join. Banks and insurance companies want to extend expiring debts and thus reduce the public sector funding share. They expect a 21 percent loss on face value plus outstanding interest payments.
Who transfers how much?
That is still unclear. So far, the IMF has made about a third of the loans. The distribution between banks and EFSF depends on how many promissory notes are exchanged by the private sector. The more bonds from insurance companies and banks are extended, the less the EFSF has to contribute. The contribution from the private sector is estimated at 37 billion euros net by 2014. By 2020, it should even be 106 billion euros. For other countries, private contributions are expressly excluded.
When will the banks and insurance companies exchange their old debts?
The preparations for the complicated operation are still going on. It will be autumn, until the time has come. This should be completed within a few days.
What are the problems?
In the exchange period Greece should be classified by the rating agencies as partially broke. As a result, the European Central Bank will temporarily no longer accept these bonds as collateral for short-term bank lending. Therefore, the euro countries have to deposit about 35 billion euros as security during this time, so that especially Greek banks do not collapse.
What happens after that?
When the conversion is completed, the extended bonds should receive additional guarantees. Greece would no longer be considered partially broke. Then the ECB could accept them again as collateral. And so could the 35 billion euros also fall away again.
How expensive will it be for Greece?
The interest that the state has to pay to the EFSF will be sharply reduced by around 5.0 percent and should amount to around 3.5 percent. However, they should not be below the costs that the EFSF itself has to bear in its own bonds. This saves Greece 30 billion euros in interest. Ireland and Portugal also receive these interest. The extended Greek old debts from the private sector are initially charged with 4.0 percent, then later with 4.5 and even later with 5.0 percent. This average will be 4.5 percent. This also saves Greece 30 billion euros in interest.
What happens to the maturities?
They are extended. As far as possible, EFSF loans are extended from the current 7.5 years to at least 15 and up to 30 years. The redemption-free period is 10 years. Also, the terms of the current Greece aid, which still run directly over the nation states, should be extended. In Germany, the state promotional bank KfW is currently winding up its loans. It has already received 198 million euros in interest from Greece.
What else happens?
Another part of Greece’s old debt is to be bought by the EFSF. It is 12.6 billion euros.
Will Greece get more help?
Yes. The European Commission and the European Investment Bank (EIB) want to help with planning aids to ensure that the EU’s long-standing development funds can also flow into the country into meaningful projects. The euro member states will also provide extraordinary technical support so that Greece can reform its backward state apparatus.
What happens to the EFSF?
It will be upgraded and will reduce the risk of infection, that is, preventing the spread of the debt crisis to Spain and Italy. French President Nicolas Sarkozy already calls him a “European Monetary Fund”, but not yet Chancellor Angela Merkel. The EFSF should now be able to drive precautionary programs, that is loans, before a country is in serious trouble. It can also support financial institutions in countries that have not yet been screened by lending to these governments. And he should be able to buy bonds from countries in the secondary markets if the ECB finds extraordinary circumstances on the financial market and threats to financial stability. But this can only be decided amicably by the euro countries.
What else was decided?
EU Council President Herman Van Rompuy is due to present proposals for better crisis management in the Eurozone by October. Germany and France want to develop common ideas at the end of August / beginning of September.