Greece bailout: Buying time for the eurozone

Luxembourg Prime Minister and Eurogroup president Jean-Claude Juncker rubs his eyes at a news conference in Brussels, 21 February Jean-Claude Juncker announced the deal after exhaustive talks

Amongst European officials and ministers there is a huge sigh of relief.

The country that has been at the heart of the eurozone's debt crisis has, for the moment, been taken off the critical list. Some of the pressure on the eurozone has lifted.

The second bailout for Greece will avert imminent bankruptcy and Greece will stay in the eurozone.

The deal comes in two parts. Investors have been asked to take steep losses so reducing the Greek debt mountain by 107bn euros (£89bn; $142bn).

The losses will be deeper than expected - up to nearly 55%. We will not know until March how many investors have accepted this deal but Greece is expected to pass a law enforcing losses on those reluctant to agree to the terms.

The second part of the deal opens the way for Greece to receive 130bn euros in loans.

Before any money is released Greece has to implement 3bn euros in spending cuts. The EU has said that delivery of the funds depends on Greece honouring its promises in a "timely and effective manner".

Eurozone governments have also agreed to lower the interest rates on the loans they made for the first bailout. That should reduce Greece's debts by a further 2.8%.

The European Central Bank has agreed to forego profits on its holdings of Greek debt, another saving for Greece.

All of this comes at a price.

Saved or pushed?
  • 20.9%
  • with 48% of young people out of work
  • 25%
    increase in homelessness over the past three years
  • 27.7%
    of Greeks at risk of poverty or social exclusion
  • 1 in 5
    of those in poverty can't afford meals with meat, every other day
  • 5,000
    calls to Athens suicide hotline in 2011 - double the 2010 figure

Permanent monitors from the EU, the IMF and the ECB will be placed on the ground in Athens to ensure there is no back-sliding.

It is a humiliating and unprecedented intrusion into Greece's sovereignty.

Athens will also have to set up a separate account that ensures priority is given to servicing debts and interest payments above funding government services.

These measures reflect the level of mistrust towards Greece.

From today Greece is being told how to run its budget and how to spend its funds. That is the price for avoiding a return to the drachma.

The biggest challenge to this plan is the Greek economy. It is in free fall. It shrunk by 7% in the last quarter of 2011. Unemployment is up to 21% and rising.

Yet Greece is now being asked to implement new cuts and swiftly. The minimum wage is to be slashed by 22%. Some pensions will be cut. Between now and 2015, 150,000 public sector workers will be fired.

To the question when will growth return to this battered economy, there is a shaking of heads.

Perhaps in a decade, I am told. The risk is that the new cuts will only deepen an existing recession.

Even the head of the IMF agrees that there are dangers Greece's economy will not grow as fast as some are predicting.

Greece now heads for an election in April. Parties that are not committed to the terms of this bailout may do well. Further protests could test the will of politicians to enforce more austerity.

So the question remains: is Greece's future secure or has this deal just bought time for the eurozone to build greater protection around its banks and around potentially vulnerable countries like Spain and Italy?

As for Greece, has it been saved or pushed further into a cycle of decline?

EU officials describe this as a historic deal that underlines the strength of solidarity within the EU.

Other voices predict that in a few months Greece will once again be teetering on the edge of default.

Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

Eurozone split - Europe's central drama

Germany is resisting French and Italian pressure to ease austerity as job creation remains elusive, the BBC's Gavin Hewitt writes.

Read full article

More on This Story

Global Economy


This entry is now closed for comments

Jump to comments pagination
  • rate this

    Comment number 372.

    366 Kane
    "How about Le Monde "End of the line for the euro". Dismiss that then!!
    The link you provided discussed a FICTIONAL spy story "Terminus pour L'Euro" which is supposed by some to have been real, along the lines of Orson Welles' "War of the Worlds" radio play that spooked many Americans years ago.
    As I mentioned before, do you ever read your links before posting them?

  • rate this

    Comment number 371.

    368 Kane
    "Forget fearmongering, when the French think their standard of living is affected, the game is up. We're at tipping point"
    Are you wilfully misrepresenting these stories or just fail to read them properly? The poll said 60% want to STAY in the euro. Considering the recent difficulties a very healthy majority. Of the 36% who wanted to leave, most were from the National Front!!!

  • rate this

    Comment number 370.

    #368 Kane

    Francois Hollande's program is clear on the Euro: "I will renegociate the EU treaty of 9/12/2011 to focus on growth and employment, and to reorient the role of the ECB in this direction. I propose to create Eurobonds" (point 11). This has been a PS policy statement for a long time. Germany simply disagrees with this.

    You just use ambiguous polls to back up your own wishful thinking.

  • rate this

    Comment number 369.

    Sarkozy is a crafty campaigner, he may well be able to reverse the actual trend.
    THIBAULT LEROUX,The Associated Press:
    "The poll by CSA showed 28 percent of respondents would vote for Hollande in the first round and 27 percent for Sarkozy"
    Sarkozy would still lose the second round though.

  • rate this

    Comment number 368.

    55 Minutes ago
    "With Francois Hollande taking the helm fearmongers will gain ground again."
    Forget fearmongering, when the French think their standard of living is going to be affected, the game is up. We're at tipping point.


Comments 5 of 372



BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.