FINANCIAL TIMES : ΟΙ ΠΡΩΤΕΣ ΑΝΤΙΔΡΑΣΕΙΣ ΚΑΝΟΥΝ ΛΟΓΟ ΓΙΑ "ΚΟΥΡΕΜΑ" ΤΟΥ ΕΛΛΗΝΙΚΟΥ ΧΡΕΟΥΣ ΚΑΤΑ 20%

Euro Zone Leaders Clinch Rescue Plan for Greece

By STEPHEN CASTLE
BRUSSELS — After weeks of uncertainty that revived fears about the foundations of the euro, European leaders on Thursday clinched a new rescue plan for Greece that could push the country into default on some of its debt for a short period but would give Europe’s bailout fund sweeping new powers to shore up struggling economies.
At a press conference late Thursday, Chancellor Angela Merkel of Germany confirmed the aid package of 109 billion euros ($157 billion) for Greece. European officials also said that financial institutions that own Greek bonds would
contribute 50 billion euros through 2014 through a combination of debt extensions and the purchase of discounted Greek bonds on the secondary market.
The outlines of the plan worked out by leaders of the 17 euro zone nations seemed particularly bold, dealing with the economic problems of bailed-out Ireland and Portugal as well as Greece, and calling for nothing short of a “European Marshall Plan” to get Greece itself on a road to recovery. The underlying economies of those countries — and others — remain remarkably frail, however.
On the central issue of extending debt, rating agencies had already issued strong warnings that such steps might constitute a limited form of default because creditors would not be repaid in full on the original terms.
The agreement came after days of conflict among Europe’s leaders over how to keep the debt crisis from engulfing the much-larger economies of Italy and Spain. Any contagion would not only pose a potent threat to the euro — the most important symbol of the European integration — but could destabilize the entire global financial system.
The plan calls for a “comprehensive strategy for growth and investment in Greece,” including the release of European Union development funds to finance infrastructure projects.
More significant, the euro zone leaders gave wide-ranging new powers to the bailout fund, the European Financial Stability Facility, by allowing it to buy government bonds on the secondary market and to help recapitalize banks where necessary.
That would effectively turn it into a prototype European version of the International Monetary Fund. The bailout fund would even be able to help shore up countries that had not requested a rescue.
Germany rejected such ideas only months ago.
Strengthening the bailout fund signals a new willingness to come to terms with the scale of the euro zone’s debt crisis by taking a big step toward common economic structures. The challenges for Greece and the other bailed-out countries remain enormous, however, and some fear a default may still happen, even though markets reacted positively Thursday.
Diplomats said that going forward with the proposals would require a change in the fund’s rules, which in turn would require approval by national parliaments.
On the eve of the summit meeting, a statement from the French president, Nicolas Sarkozy, and Mrs. Merkel said they had “listened” to the views of the president of the European Central Bank, Jean-Claude Trichet, who flew in from Frankfurt unexpectedly to join them in Berlin.
Though the statement from Mr. Sarkozy and Mrs. Merkel did not say whether they had settled the issue of allowing Greece to write down some of its debt — something Mr. Trichet has argued against publicly and adamantly — suggestions before the summit meeting in Brussels were that the E.C.B. had softened its stance.
“The demand to prevent a selective default has been removed,” the Dutch finance minister, Jan Kees de Jager, told Parliament in The Hague, Reuters reported.
That also appeared to be the sense of a draft meeting statement that circulated before the summit meeting ended.
“The financial sector has indicated its willingness to support Greece on a voluntary basis through a menu of options (bond exchange, rollover and buyback) at lending conditions comparable to public support with credit enhancement,” the draft document said.
Though no figures were specified in the draft agreement, the loss for private investors would be around 20 percent, according to a German official not authorized to speak publicly.
“Selective default” is used by rating agencies to describe when terms of a bond such as the repayment deadline or interest rate have been altered. It falls short of an outright default, which usually occurs when the borrower stops making payments.
One theory is that the rating agencies could be persuaded to wait before issuing any formal ruling on the plan.
But the draft statement offered a series of concessions for Greece under a new bailout, concessions designed “through lower interest rates and extended maturities, to decisively improve the debt sustainability and refinancing profile of Greece.”
According to the draft, the maturity of European loans to Greece would be extended to a minimum of 15 years from seven and a half years and at interest rates of around 3.5 percent.
Similar help through reduced borrowing costs would be extended to Portugal and Ireland. The Irish government would, in exchange, end a dispute with France by promising to “participate constructively” in talks on a common base for corporate tax in Europe. Officials said that means Ireland would not be required to raise its relatively low corporate tax rate — currently 12.5 percent — as had been sought by some countries, including France, which have higher tax rates.
The summit meeting was called after days of market turbulence in which borrowing costs spiked for Italy and Spain, raising fears that the euro zone debt crisis would spread to those much bigger countries, potentially setting off another global financial crisis. Germany, Finland and the Netherlands have insisted that private bondholders share the pain of a second bailout, putting them at odds with the E.C.B. and some other governments. Besides concerns over contagion, the central bank has said a selective default would make it impossible for it to accept Greek bonds as collateral.
James Kanter contributed reporting from Brussels. Matthew Saltmarsh and Landon Thomas Jr. contributed from London.