BRUSSELS — After more than 12 hours of talks, the countries that use the euro reached an agreement early Tuesday to hand Greece $170 billion in extra bailout loans to save it from a potentially disastrous default next month, a European Union diplomat said.
The euro surged as the news broke, climbing 0.7 percent to $1.328 within minutes. While much depended on the details of the deal, a final agreement on the bailout for Greece will take some pressure off the 17-country currency union, which has been battling a serious debt crisis for two years.
The deal — details of which were still being worked out by European finance ministers in an all-night session in Brussels — was expected to bring Greece’s debt down to 120.5 percent of gross domestic product by 2020, according to the official. That’s around the maximum that the International Monetary Fund and the eurozone considered sustainable.
The diplomat spoke on condition of anonymity because a formal announcement was pending.
The country needs the (euro) 130 billion ($170 billion) bailout so it can move ahead with a related (euro) 100 billion ($130 billion) debt relief deal with private investors. That deal needs to be in place quickly if Athens is to avoid a disorderly default on a bond repayment on March 20.
Last week, a new report from Greece’s debt inspectors indicated that the country’s debt would still be close to 129 percent of GDP by the end of the decade, despite massive new spending cuts planned by Athens and a tentative (euro) 100 billion debt relief deal with private investors.
That level would have prevented the IMF and some euro countries from putting up more rescue money — on top of a (euro) 110 billion bailout Greece received in 2010.
Moving in and out of talks with bondholder representatives and consultations among themselves, the IMF and the European Central Bank, the ministers pushed private investors to accept steeper losses, going beyond a 50 percent cut in the face value of their bonds.
It was unclear what the final deal with bondholder representatives looked like, but the lower debt level suggested that they compromised further. The big question will now be how many banks and other investment funds will actually agree to participated voluntarily and whether Greece will have to force some holdouts to sign up to make the deal effective.
Greece is a perfect case study of what happens when banks are bailed out ultimately by the working class. The Greek government has misled its people on the true state of their economy for a decade. The likes of Goldman Sachs have been doling out loans that could not be repaid. Now, the people are suffering massive cuts in wages and services. Can you imagine what would happen if workers in the US had to suddenly deal with a thirty percent cut in minimum wage? Now, in Greece, the minimum wage is reduced to under $3 per hour. This represents significant poverty to those who have jobs. Nearly 50% of young job seekers are unemployed.
So now the top level bankers emerge whole, the smaller banks who directly hold the mortgages and business lines are getting a 50% haircut on their bonds and the workers are trapped in poverty without the hope of democracy bringing about a better tomorrow. Greece lost its democracy in all of this as well. Run by bankers with no elections, the Greek people are now fully owned by their bankers.
This is what happens when banks are bailed out. It will continue until banks are left to endure the repercussions of their own bad decisions, gambling and lack of judgement. If free enterprise were allowed to rule the day, this would not have happened.
Are we prepared to learn this lesson in the US? Are the too big to fail banks going to tap our collective coffers again? You betcha!
It’s only a matter of time and Obama being in charge. Bailouts will continue until there is nothing left….
The bailouts are not an Obama problem. This has been building under republican and democratic administrations alike. Until we literally break up the big banks and regulate their ability to play both sides of the markets, we are doomed to repeat the bailouts. We bailout because we have to. the costs to society in letting banks this big fail are disastrous. The only way to prevent this is to break them up, set size limits and take away their ability to create fraudulent instruments.
Obama, please. You speak as if you have no understanding except what the wealthy want you to think.
This is the framing of the issue that makes change impossible. Get educated. Read a book on the Wall Street engineered crash of 2008 and then tell me Obama is why we bail out banks.