The Eurogroup, a meeting of the finance ministers of all the members of the Eurozone, agreed to doll out 34.3 billion euros to Greece as part of a larger bailout plan that has famously included austerity measures that have met with much resistance. “The disbursement today will allow liquidity to return to Greece,” said European Union (EU) Economic and Monetary Affairs Commissioner Olli Rehn. Greek Prime Minister Antonis Samaras and Finance Minister Yannis Stournaras will conduct a press conference today to evaluate the decision by Eurogroup.
By the Numbers
The 34.3 billion euros will be used for recapitalization (16 billion), budgetary finance (7 billion) and a Greek bond buyback program (11.3 billion). Olli Rehn, commenting on people who have speculated about Greece abandoning the euro, said, “They have been proved wrong by the commitment shown by Greece and the Eurozone.” Greece recently finished a buyback of government bonds totaling more than 31 billion euros and is committed to paying down over 20 billion euros of still outstanding public debt.
Debt Reduction Targets
The recent measures have partly been a result of the International Monetary Fund’s (IMF) insistence that Greece have a plan in place that would bring their debt down to 124% of their Gross Domestic Product (GDP) by 2020. While that is a higher debt level than most would like to see, it would be a vast improvement from Greece’s current 175% debt level. The IMF has said before that it would withhold more funding if Greece’s bond buyback plan was ineffective.
Eurogroup chief Jean-Claude Juncker has been less than pleased with the Greek buyback program, which was expected to cut debt by about 11% of its GDP, but will come in closer to 9.5% and cost over a billion euros more than anticipated. In spite of Greece not achieving what was forecasted, Juncker says the IMF will continue to back the bailout. At a recent press conference Juncker said, “The IMF will take part in the program,” making it clear the IMF will not abandon Greece, even though they have had missteps.
Austerity Measures Continue
The Greek government recently approved new austerity measures and reforms and it is set to get about 49 billion euros by the end of the first quarter of next year as a result of today’s decision by the Eurogroup. The actual disbursement of funds to Greece will be paid out in several tranches, or portions, and the Eurogroup indicated that, “34.3 billion euros will be paid out to Greece in the following days. The remaining amount will be disbursed in the first quarter of 2013.”
While the United States has been watching the developments in Greece closely, France has the most at stake in Greece’s turn around. According to recent figures, France has more exposure to Greek debt than seven other major countries combined, including Germany, the United Kingdom, the U.S., Switzerland, Italy, Spain and Japan. Even though Americans don’t feel a direct impact of the economic situation in Greece, and the U.S. is not as vulnerable to its impact as some countries, we still have some exposure to the tune of about $3 billion. When taken in context of our other debt and the impending fiscal cliff, most American’s just don’t seen very interested in a problem so far away, with such minimal impact on their daily lives.
