July 21, 2011
European leaders were on Thursday evening edging towards a Greek bail-out plan that would get private holders of Greek bonds to shoulder part of the rescue’s burden – a political victory for the German chancellor, but one that will almost certainly lead to the first default on eurozone bonds since the creation of the single currency.
Eurozone heads of government quickly reached agreement in principle to lower interest rates on rescue loans to all three countries in bail-out programmes – Greece, Ireland and Portugal – to about 3.5 per cent, or 100-200 basis points lower than they are currently paying, officials said. They also agreed to extend the loans’ repayment schedules from 7 years to at least 15 years.
In addition, they gave the bloc’s €440bn bail-out fund, the European Financial Stability Facility, new powers to help countries that are not currently in bail-outs, including precautionary lines of credit and the ability to recapitalise any struggling bank in the eurozone.
But the central issue – as it has been for weeks – was how to get private Greek bondholders to become part of the package, which is expected to lead to a temporary default on some Greek bonds.
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