Euro ministers to approve 2nd Greek bail-out

The private sector involvement was deemed successful as over 85 percent of private and state-owned banks, investment funds and pension funds agreed to change their old Greek bonds for new ones at a net loss of over 70 percent.

By triggering "collective action clauses" on reluctant bondholders, Athens forced an even higher participation rate of over 95 percent. The move was deemed a "credit event" by finance associations, meaning that default insurances to the tune of €2.4 billion have now to be paid out and ratings agencies have placed Greece in "restricted default" territory - just one notch higher than outright bankruptcy.

Indicating that the forced losses were part of the plan, Eurogroup chief Jean-Claude Juncker said the "necessary conditions are in place" for the final approval on the bail-out, however. He also said the Washington-based International Monetary Fund (IMF) would contribute "substantially" to the new rescue package.

The IMF is expected to put some €28 billion on the table, its chief Christine Lagarde indicated on Friday, with a final approval by the lender's board due on Wednesday. Some €10 billion of it is not fresh money, however, but is to be rolled over from Greece's first bail-out, agreed in 2010 and as yet not paid out in full.

With general elections later this month and with voters angered by the harsh austerity measures linked to the bail-outs, Greece's troubles are unlikely to be over.

EU economics commissioner Olli Rehn last week called the second bail-out "a unique opportunity not to be missed" and said he now expects Greek authorities "to maintain their strong commitment to the economic adjustment programme and to rigorously and timely implement the policy package."

Similar warnings came from IMF chief Lagarde. "Restoring competitiveness and a sustainable fiscal position will require Greece to undertake sustained and deep structural reforms over a prolonged period," she said.

In a report presented to the Eurogroup last week, her staff warned that failure to stick to the agreed targets would put up financing costs for Athens by another €15 billion. Meanwhile, the possibility for a third Greek bail-out has not been ruled out by either German finance minister Wolfgang Schauble or by Eurogroup chief Juncker.

The latest data released on Friday showed the Greek economy shrank by a worse-than-expected 7.5 percent in the fourth quarter of 2011. Overall, the Greek economy contracted by 6.9 percent last year, instead of the 5.5 percent projections eurozone financiers had counted on.

Lagarde, a former French finance minister, also urged her ex-colleagues to boost the eurozone's bail-out funds - a move so far resisted by Germany. The most likely scenario for the Eurogroup to approve - but not on Monday - is for the €250 billion left over from the temporary European Financial Stability Facility to be added rather than subtracted from the €500-billion-strong permanent European Stability Facility due to come into force in July.

Spanish troubles

Ministers on Monday are also expected to look at Spain's worsening economic figures - the first major test for the EU's strengthened deficit rules.

Just minutes after signing a German-inspired treaty on fiscal discipline, Prime Minister Mariano Rajoy earlier this month announced that his country would not be able to cut its public deficit to 4.4 percent of gross domestic product as agreed with the EU commission, but would aim for 5.8 percent instead.

High unemployment rates and recession make it difficult for the newly elected Prime Minister to stick to targets drawn up last year, when the economy was still expected to grow. The EU commission has sent experts to Madrid to look at the latest macro-economic data and compare it with the deficit targets, before ruling if Spain needs to pay fines or if it can agree to extra leeway.

The Netherlands has also announced it will overshoot its deficit targets but has indicated that, unlike Madrid, it will not seek flexibility.