PM: Eurozone decisions a 'European Marshall Plan' for Greece

The eurozone heads of state and government late Thursday in Brussels agreed a new 109 billion euro support programme for Greece supported by the International Monetary Fund (IMF) and with the voluntary contribution of the private sector to "fully cover the financing gap", over which Greek prime minister George Papandreou expressed full satisfaction, calling it a "European 'Marshall Plan'" for the country.
Papandreou expressed full satisfaction with the decisions taken at the extraordinary eurozone summit, speaking at a pres conference after the marathon deliberations.
"Eighteen years ago, when the size of the problem was discovered...we engaged in an unprecedented effort at home and a consistent, tough negotiation abroad, to avert that which most people at that time considered inevitable, and for our country and the Greek families not to suffer the consequences of a default," he said, adding that the country gradually regained its credibility, resulting in "the effective negotiation of the problem of the state debt" on the basis of the principles of: long-term sustainability of the debt, with improvement of the terms of the debt servicing; lightening the burden on the Greek families; the unobstructed meeting of the country's borrowing needs over the coming years; and boosting growth, rekindling the real economy and creating new jobs.
Papandreou said his PASOK government from the outset conducted the negotiations on the basis of a plan.
Thursday's eurozone summit decisions, the prime minister continued, ensure: the long-term sustainability of the Greek debt and create the conditions for full yield of the stabilisation programme for the Greek economy; put into effect an integrated support programme for the Greek real economy, aiming at the speediest possible return to positive growth rates; ensure the country's borrowing needs up to 2020 with respect to the tradable part of the debt (non-tradable is the part of the debt in the possession of central banks, eurozone countries and the IMF); doubling of the mean duration of the overall Greek debt (from 6.5 to 13 years); stabilisation of the mean cost of servicing of the debt at below 5 percent, a level much more auspicious than that on the markets, for the next 40 years; and introduction of a buy-back mechanism of the debt on the secondary market via the EFSF (European Fiscal Stability Facility).
All those, combined with the exchange of the existing bonds with new 30-year bonds, ensure a reduction of the Greek debt by 26.1 billion euros, or 12 percent of GDP, Papandreou explained, noting also that the buy-back mechanism is open to other capital as well, which could be used for debt buy-back.
Papandreou further said that the provision of guarantees to the private sector for extension of the debt by 30 years increases the nominal gross debt, but enables reduction of the net debt, which he stressed is crucial for the debt's sustainability.
"The private sector will maintain its participation in the Greek debt up to and including 2020, while it will extend the bonds it holds that mature during that period by 30 years," Papandreou said, adding that the participation of the private sector in ensuring the sustainability of the Greek debt is being effected in an manner that is absolutely secure for the Greek banking system for three reasons.
First, because it fully ensures the provision of liquidity to the Greek banking system and Greek economy via a decision to be taken by the European Central Bank (ECB) and with the guarantee of the EFSF in the transition period. Second, because it strengthens the Greek banks' capital adequacy, and, third, because in the first critical years, up until 2016, the debt servicing cost is lightened since a reduced interest rate is foreseen.
Papandreou added that with the imminent reform of the taxation system, it will become simpler and fairer.

Finance Minister
Replying to questions at the same press conference, finance minister Evangelos Venizelos said that the summit decisions provide even greater shielding of the Greek banks, as they fully ensure the banks' liquidity and fully cover their financing needs.
This, he stressed, is a resounding reply to those who had invested in an evaluation that would have created problems for the Greek banking system, adding that the eurozone, the ECB and the EFSF provide full coverage, sending a "clear message to the markets".
As for the decision to reinforce the banking system's capital adequacy, it comprises a positive message for the Greek depositors and the real economy.
"We wanted these decisions in order to put a bottom on the barrel, since the ensurance of the debt's sustainability and stability of the banking system enables us to implement our programme," Venizelos said.
To a question on the transition period during which the ECB will receive guarantees from the European Mechanism for continuation of the financing, Venizelos said that if such is implemented it will be of a limited duration.
He said the decision also "sent a message calling for global economic governance, transparency, transparency and determination in safeguarding the euro, which is being attacked in its core, and to countries such as Italy which account for 25 percent of the eurozone debt".
Questioned on the results of the recent crash tests, Venizelos underlined that the performance of the 6 largest Greek banks -- which account for 90 percent of the Greek banking system -- were satisfactory, "which sends a very positive message to the Greek citizens, the depositors and the markets".

Statement by the Heads of State or Government of the Euro Area and EU Institutions
In a statement issued after the summit, the eurozone leaders and EU institutions reaffirmed commitment to the euro and pledged
to do everything needed to ensure the stability of the euro area as a whole and of its member countries.
They welcomed the measures undertaken by the Greek government to stabilise public finances and reform the economy, and the unprecedented by necessary measures recently adopted to put the Greek economy back on a sustainable growth path.

The full text of the Statement is as follows:

"We reaffirm our commitment to the euro and to do whatever is needed to ensure the financial stability of the euro area as a whole and its Member States. We also reaffirm our determination to reinforce convergence, competitiveness and governance in the euro area. Since the beginning of the sovereign debt crisis, important measures have been taken to stabilize the euro area, reform the rules and develop new stabilization tools. The recovery in the euro area is well on track and the euro is based on sound economic fundamentals. But the challenges at hand have shown the need for more far reaching measures.
Today, we agreed on the following measures:


1. We welcome the measures undertaken by the Greek government to stabilize public finances and reform the economy as well as the new package of measures including privatisation
recently adopted by the Greek Parliament. These are unprecedented, but necessary, efforts to bring the Greek economy back on a sustainable growth path. We are conscious of the efforts that the adjustment measures entail for the Greek citizens, and are convinced that these sacrifices are indispensable for economic recovery and will contribute to the future stability and welfare of the country.

2. We agree to support a new programme for Greece and, together with the IMF and the voluntary contribution of the private sector, to fully cover the financing gap. The total official financing will amount to an estimated 109 billion euro. This programme will be designed, notably through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece. We call on the IMF to continue to contribute to the financing of the new Greek programme. We intend to use the EFSF as the financing vehicle for the next disbursement. We will monitor very closely the strict implementation of the programme based on the regular assessment by the Commission in liaison with the ECB and the IMF.

3. We have decided to lengthen the maturity of future EFSF loans to Greece to the maximum extent possible from the current 7.5 years to a minimum of 15 years and up to 30 years with a grace period of 10 years. In this context, we will ensure adequate post programme monitoring.
We will provide EFSF loans at lending rates equivalent to those of the Balance of Payments facility (currently approx. 3.5%), close to, without going below, the EFSF funding cost. We also decided to extend substantially the maturities of the existing Greek facility. This will be accompanied by a mechanism which ensures appropriate incentives to implement the programme.

4. We call for a comprehensive strategy for growth and investment in Greece. We welcome the Commission’s decision to create a Task Force which will work with the Greek authorities to target the structural funds on competitiveness and growth, job creation and training. We will mobilise EU funds and institutions such as the EIB towards this goal and relaunch the Greek economy. Member States and the Commission will immediately mobilize all resources necessary in order to provide exceptional technical assistance to help Greece implement its reforms. The Commission will report on progress in this respect in October.

5. The financial sector has indicated its willingness to support Greece on a voluntary basis through a menu of options further strengthening overall sustainability. The net contribution of the private sector is estimated at 37 billion euro(1). Credit enhancement will be provided to underpin the quality of collateral so as to allow its continued use for access to Eurosystem liquidity operations by Greek banks. We will provide adequate resources to recapitalise Greek banks if needed.
(1) Taking into account the cost of credit enhancement for the period 2011-2014. In addition, a debt buy back programme will contribute to 12.6 billion euro, bringing the total to 50 billion euro. For the period 2011-2019, the total net contribution of the private sector involvement is estimated at 106 billion euro.

Private sector involvement:

6. As far as our general approach to private sector involvement in the euro area is concerned, we would like to make it clear that Greece requires an exceptional and unique solution.

7. All other euro countries solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms. The euro area Heads of State or Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the euro area as a whole.

Stabilization tools:

8. To improve the effectiveness of the EFSF and of the ESM and address contagion, we agree to increase their flexibility linked to appropriate conditionality, allowing them to:
- act on the basis of a precautionary programme;
- finance recapitalisation of financial institutions through loans to governments including in non programme countries ;
- intervene in the secondary markets on the basis of an ECB analysis recognizing the existence of exceptional financial market circumstances and risks to financial stability and on the basis of a decision by mutual agreement of the EFSF/ESM Member States, to avoid contagion.
We will initiate the necessary procedures for the implementation of these decisions as soon as possible.
9. Where appropriate, a collateral arrangement will be put in place so as to cover the risk arising to euro area Member States from their guarantees to the EFSF.

Fiscal consolidation and growth in the euro area:

10. We are determined to continue to provide support to countries under programmes until they have regained market access, provided they successfully implement those programmes. We welcome Ireland and Portugal's resolve to strictly implement their programmes and reiterate our strong commitment to the success of these programmes. The EFSF lending rates and maturities we agreed upon for Greece will be applied also for Portugal and Ireland. In this context, we note Ireland's willingness to participate constructively in the discussions on the
Common Consolidated Corporate Tax Base draft directive (CCCTB) and in the structured discussions on tax policy issues in the framework of the Euro+ Pact framework.

11. All euro area Member States will adhere strictly to the agreed fiscal targets, improve competitiveness and address macro-economic imbalances. Public deficits in all countries except those under a programme will be brought below 3% by 2013 at the latest. In this context, we welcome the budgetary package recently presented by the Italian government which will enable it to bring the deficit below 3% in 2012 and to achieve balance budget in 2014. We also welcome the ambitious reforms undertaken by Spain in the fiscal, financial and structural area. As a follow up to the results of bank stress tests, Member States will provide backstops to banks as appropriate.

12. We will implement the recommendations adopted in June for reforms that will enhance our growth. We invite the Commission and the EIB to enhance the synergies between loan programmes and EU funds in all countries under EU/IMF assistance. We support all efforts to improve their capacity to absorb EU funds in order to stimulate growth and employment, including through a temporary increase in co-financing rates.

Economic governance:

13. We call for the rapid finalization of the legislative package on the strengthening of the Stability and Growth Pact and the new macro economic surveillance. Euro area members will fully support the Polish Presidency in order to reach agreement with the European Parliament on voting rules in the preventive arm of the Pact.

14. We commit to introduce by the end of 2012 national fiscal frameworks as foreseen in the fiscal frameworks directive.

15. We agree that reliance on external credit ratings in the EU regulatory framework should be reduced, taking into account the Commission's recent proposals in that direction, and we look forward to the Commission proposals on credit ratings agencies.

16. We invite the President of the European Council, in close consultation with the President of the Commission and the President of the Eurogroup, to make concrete proposals by October
on how to improve working methods and enhance crisis management in the euro area..

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