Euro Zone Ministers Agree on Debt Reduction Measures for Greece

Barry Randall
27 Nov, 2012
New York City

European markets traded at a 3-year high after ministers agreed to release next tranche of bailout to Greece and lower projected debt by 2022. The political will to forgo Greek debt lifted the euro. The O.EC.D lowered its economic outlook across 34 member nations.

[R]2:30 PM Frankfurt – European markets traded at a 3-year high after ministers agreed to release next tranche of bailout to Greece and lower projected debt by 2022. The political will to forgo Greek debt lifted the euro. The O.EC.D lowered its economic outlook across 34 member nations.[/R]

European markets jumped to a 3-year high after euro zone ministers agreed to a release of measures that will cut Greece’s debt to more manageable debt level.

FTSE 100 index gained 0.4% or 24.09 to 5,811.23, DAX index added 0.6% or 43.25 to 7,335.13 and CAC 40 index added 0.3% or 9 to 3,510.11.

Euro zone ministers, the International Monetary Fund and the officials of European Central Bank agreed on a package of incentives and conditions after 12 hours of meeting.

Ministers agreed to cut Greek debt by 43.7 billion euros based on the estimate of government debt to drop to 124% of gross domestic product by 2020.

Greece will receive the 43.7 billion of funds in four instalments after it meets the conditions laid out by lenders. Of the 34.4 billion euros Greece will receive in December will include 23.8 billion loans that will fund banks and 10.6 billion will be released in government assistance.

Ministers also agreed that national governments will return 11 billion euros in gains in Greek debt securities held by national central banks.

New austerity steps demanded by international lenders require Greek debt to fall below 110% of GDP by 2022.

Ministers agreed to cut debt load by lowering interest rate on official loans and extend maturity of the bailout funds to 30 years from 15 years, and offer a 10-year deferral on interest repayment on the bailout loans.

Eurogroup Chairman Jean-Claude Juncker said ministers would grant a formal approval of loans on December 13 after lawmakers in Germany, Finland and Holland approve the package.

After the deal agreement, the euro gained to reach at the highest level since October 31 to $1.3011 but eased back to $1.2988 in Frankfurt trading.

Separately, traders focused on the revised economic outlook for the euro zone and 34 member nations.

The Organization for Economic Cooperation and Development cut its estimate across all member nations to 1.4% in 2013 from its previous estimate of 2.2% forecast only six months ago.

The O.E.C.D. report estimated a mild contraction in G.D.P. of 0.1% in 2013 and resumption of growth of 1.3% in 2014 in the euro zone.

The report that unemployment is expected to rise further in many countries “unless structural measures are used to lift employment growth.”