European Union officials will focus on preparing a new aid package for Greece that includes a “voluntary” role for investors after the EU and the International Monetary Fund approved the fifth installment of Greece’s 110 billion-euro ($161 billion) bailout. “I expect the euro group to agree to additional financing to be provided to Greece under strict conditionality,” Luxembourg Prime Minister Jean-Claude Juncker said after meeting with Greek Prime Minister George Papandreou in Luxembourg on June 3. “This conditionality will include private-sector involvement on a voluntary basis.”
Papandreou agreed to 78 billion euros in additional austerity measures and asset sales through 2015 to secure the 12 billion-euro bailout payment and meet conditions for receiving an additional rescue package. He agreed to make “significant” cuts in public-sector employment and establish an agency to manage accelerated asset sales, according to a statement released in Athens on June 3. The plan is fueling popular opposition and protests across Greece.
Greek bonds gained on the prospect of a new aid plan, with the yield on the country’s two-year notes falling 172 basis points yesterday to 22.8 percent, the lowest since April 20. The agreements came at the end of a week when Greece’s fiscal crisis worsened enough for Moody’s Investors Service to raise the probability of a default to 50 percent.
A year after the rescue that aimed to stop the spread of the debt crisis, Greece remains mired in a third year of recession, shut out of financial markets and saddled with the biggest debt load in the euro’s history. Ireland and Portugal followed in seeking bailouts and Greece now needs a second rescue package to avoid the euro area’s first sovereign default.
Under the original rescue, Greece was due to sell 27 billion euros of bonds next year. EU leaders and Papandreou have acknowledged that a return to markets won’t be possible with Greece’s 10-year debt yielding 16 percent, more than twice the level at the time of the bailout. The EU is looking to close that funding gap through new loans and bondholders’ willingness to roll over Greek debt, EU officials have said.
