New Greek bail-out to prioritise debt holders

Financial Times
February 7, 2012

European officials are insisting that any new bail-out programme for Greece earmark funds specifically to pay off remaining holders of Greek debt, giving lenders the freedom to withhold aid to Athens without risking a messy default that could reignite panic in financial markets.

Under a new Franco-German plan that senior European officials said was likely to be included in a new Greek rescue, eurozone officials would create an escrow account to accept new bail-out funding instead of paying it all directly to Athens, as in the past.

The new fund would then ensure bondholders were paid off while additional cash to run the Greek government could still be withheld if Athens did not live up to tough new reform demands.

In Athens, leaders of the three political parties in the national unity government were to meet on Tuesday afternoon to agree on reforms, the prime minister’s office said.

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