BRUSSELS (MNI) – Eurozone finance ministers moved to prevent an
impending Greek default early Tuesday by agreeing to an E130 billion
bailout package for Athens that included a larger contribution by
private-sector creditors.

The deal, reached after 13 hours of talks, also included greater
contributions by the public sector in the form of lower interest rates
on loans to Greece and an agreement by the European Central Bank to use
its profits on Greek government bonds to ease Greece’s debt burden.

“Significant progress has been made overnight,” said Christine
Lagarde, managing director of the International Monetary Fund, at an
early-morning press conference. Lagarde noted that the result of the
negotiations was that Greece’s debt burden would be 120.5% of GDP in
2020, rather than nearly 129%.

“This should give enough space to Greece to restore its
competitivity and to improve its debt sustainability,” she said.

Under the terms of the deal, banks and other holders of E200
billion in Greek government bonds would write down their holdings by
53.5%. The writedown, up from 50% initially agreed, will reduce Greece’s
debt stock by E107 billion and the amount of debt it has to refinance
between 2012 and 2020 by around E150 billion.

The greater sacrifice by the private sector represented a victory
for the Netherlands and Germany, which refused to accept a debt ratio of
124% and repeatedly sent its side’s negotiators back to the bank
negotiators, headed by Charles Dallara of the Institute of International
Finance, to demand deeper cuts.

In return for the bailout, Eurogroup ministers said in a statement
that Greece agreed to achieve a primary budget surplus from 2013,
liberalize its labor markets and make other structural reforms.

Athens will also have to submit to tight controls and oversight
procedures, with the Eurozone establishing an “enhanced and permanent
presence on the ground in Greece” to monitor performance. And in order
to reassure investors that maturing bonds will be redeemed on time,
Greece agreed to pay funds equal to a quarter’s debt service into a
segregated account of its debt paying agent.

“We hope the unprecedented solidarity of its Eurozone partners will
be matched with a commitment to implement the program by Greek political
leaders,” Olli Rehn, the European Economic and Monetary Affairs
commissioner, said.

Lagarde said that even with the new deal, there were still
important downside risks for Greece. Most particularly, with a heavy
burden of austerity, Greece must somehow grow its economy sufficiently
in the years ahead to make its debt truly sustainable.

“It’s not an easy program. It’s a very ambitious program,” Lagarde
said.

–Brussels newsroom; jduffy@marketnews.com
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