Saturday

26th Sep 2020

Euro leaders agree second Greece bailout and overhaul of rescue fund

  • 'We created a solid firewall,' said Van Rompuy (Photo: Council of European Union)

Following weeks of political and market turbulence, eurozone leaders on Thursday undertook radical steps to safeguard the single currency agreeing the beginnings of a European Monetary Fund and a fresh bailout for Greece.

With the one-day emergency summit representing something of a make-or-brake gathering for the 17-nation eurozone, leaders were quick to underline the far-reaching and "credible" nature of the agreement.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

"For the first time, the politics and the markets are coming together," said European Commission president Jose Manuel Barroso, with markets having to date doubted the fundamental commitment of leaders to saving the eurozone.

EU council president Herman Van Rompuy said the deal proved "we will not waver in defence of our common currency".

Under the agreement, Greece is to get a fresh bailout, but with a lower interest rate (around 3.5%) and with a minimum of 15 years to pay back the loans. "The total official financing will amount to an estimated 109 billion euro," says the final agreement.

Pushed by Germany, the private sector will also be involved but eurozone leaders stressed several times that private sector contribution will be "voluntary" and will not be part of any potential future bailouts for other countries.

There remains a question mark over whether rating agencies will view the deal as a default, having previously said they take a dim view of involving the private sector.

German chancellor Angela Merkel indicated it was a risk she is willing to take. "We all know rating agencies are going to take a close look at this. I can't prejudge their rating. But I think that for markets it's important to achieve sustainability and for that it's very important to have private sector involved."

'European monetary fund'

Eurozone leaders also attempted to put out potential future fires by agreeing an overhaul of the eurozone's €440bn bailout fund so that it can act pre-emptively.

Under the deal, which will have to be ratified by national parliaments, the fund will be entitled to help out countries with credit line before they get to the stage of needing long-term aid and recapitalise banks through loans to governments. This aid could also be supplied to countries not in a bailout programme, something that is not the case currently.

"We have agreed to create the beginnings of a European Monetary Fund," said French president Nicolas Sarkozy.

Merkel, who forced Paris to back down on a proposed bank levy in return for giving new powers to the rescue fund, said the move was "historic".

"What we are doing now is an example for deeper integration - handing over and transferring more competences to EU institutions. This is a historic day."

Barroso, who on the eve of the summit said the history would harshly judge the leaders if they failed to reach a deal, urged them to "defend and implement" it with "determination".

Greek prime minister George Papandreou said the deal will "mean (a) lightening of the burden on the Greek people" whom he referred to as "proud and industrious".

While European stocks rallied when draft conclusions were leaked earlier in the day, some commentators were already highly critical of the deal.

Sony Kapoor, managing director of policy group Re-Define Europe, said: "EU leaders have missed the boat, yet again."

"The leaders pay lip service to the need for growth and investment in Greece but this is no Marshall Plan. The debt overhang will hurt growth and investment even as EIB and other EU funds seek to stimulate it."

He also said the changes to the rescue fund were based on "excessive conditionality" with Merkel stressing several times that the enhanced fund will need unanimity from member states in order to act.

EU looking at trillions in shock-and-awe plan to end crisis

A plan involving a multi-trillion euro leveraging of the eurozone's rescue fund via the European Central Bank is under consideration as the EU comes under global pressure to act quickly to prevent the bloc's crisis kicking off a global recession.

Finland puts Greek bailout package under pressure

The eurozone's second bailout for Greece, agreed in July, already looks in trouble as a series of smaller EU countries demands that Athens puts up collateral in return for national loans.

Analysis

China's carbon pledge at UN sends 'clear message' to US

China's pledge to become carbon neutral before 2060 is "good news" for Europe, but it sends a clear message to Washington ahead of the US election - in which climate change has become a significant aspect for voters.

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic Council meets Belarusian opposition leader Svetlana Tichanovskaja
  2. Nordic Council of MinistersNordic Region to invest DKK 250 million in green digitalised business sector
  3. UNESDAReducing packaging waste – a huge opportunity for circularity
  4. Nordic Council of MinistersCOVID-19 halts the 72nd Session of the Nordic Council in Iceland
  5. Nordic Council of MinistersCivil society a key player in integration
  6. UNESDANext generation Europe should be green and circular

Latest News

  1. Berlin repeats support for EU human rights sanctions
  2. China's carbon pledge at UN sends 'clear message' to US
  3. Far right using pandemic to win friends in Germany
  4. Visegrad countries immediately push back on new migration pact
  5. Why no EU progress on Black Lives Matter?
  6. EU migration pact to deter asylum
  7. 'Era of EU naivety ends', MEP pledges on foreign meddling
  8. Anti-mask protesters pose challenge for EU authorities

Stakeholders' Highlights

  1. Nordic Council of MinistersNEW REPORT: Eight in ten people are concerned about climate change
  2. UNESDAHow reducing sugar and calories in soft drinks makes the healthier choice the easy choice
  3. Nordic Council of MinistersGreen energy to power Nordic start after Covid-19
  4. European Sustainable Energy WeekThis year’s EU Sustainable Energy Week (EUSEW) will be held digitally!
  5. Nordic Council of MinistersNordic states are fighting to protect gender equality during corona crisis
  6. UNESDACircularity works, let’s all give it a chance

Join EUobserver

Support quality EU news

Join us