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24th Sep 2023

Euro states set to agree second loan for Greece

  • Greek protests were carrying on on Thursday as the euro-leaders met (Photo: EUobserver)

Eurozone leaders look set to greenlight a new loan for Greece as well as establish what will effectively be a European Monetary Fund, according to draft conclusions circulating on Thursday afternoon (21 July).

With the meeting closely watched around the world, the 17 leaders need to take major steps not just to help debt-ridden Greece but also to draw a line under the eurozone crisis which has in recent days been threatening to engulf Italy and Spain, the single currency's third and fourth largest economies.

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"We agree to support a new programme for Greece and to provide an additional amount of up to € [xx]," say the draft conclusions.

Athens received a €110bn EU-IMF bailout last year but it quickly became apparent that it was going to need a second loan in order to meet its repayment obligations further down the line.

The eurozone pre-agreement also suggests bailout loans for Greece from the European Financial Stability Facility (EFSF), the eurozone rescue fund, are extended from seven years to 15.

New loans will also be given at the lower rate of 3.5 percent.

The document also suggests profound changes to the rescue fund making it more flexible by allowing it to intervene earlier, before a country gets into deep trouble, something the International Monetary Fund does.

"We agree to increase the flexibility of the EFSF, allowing it to intervene on the basis of a precautionary programme, with adequate conditionality."

The draft also says the €440bn fund should be able to recapitalise banks, including banks in those countries that are not subject to an EU bailout. This is particularly important to countries such as Austria or France whose banks have a large exposure in Greece.

Private sector involvement, something pushed for strongly by Germany, the Netherlands and Finland, will be on a "voluntary basis", says the paper without going into detail, with BNP Paribas and Deutsche Bank representatives attending the emergency summit. The paper refers only to "financial sector" involvement.

The conclusions also call for a comprehensive "strategy for growth and investment" in Greece, although text referring to a 'Marshall Plan' for the debt-ridden southern Mediterranean country is set to be removed after Austria complained that it sounded like "starving children", an EU diplomat explained.

The term also did not sit well as the Marshall aid from the US to Europe after World War II was money given to help post-war economic recovery. The money for Greece is in the form of a loan with an interest rate.

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