Eurozone ministers OK Greece debt deal

LONDON – Europe’s ailing currency union approved its second bailout for Greece in less than two years, signing off on a $170 billion rescue package early this morning after weeks of bickering and rising ill feeling between Athens and other regional capitals.

The deal should help ward off the specter of an imminent Greek default, which threatened to occur as soon as next month and to throw global markets into turmoil.

But the price for Greece is a fresh round of punishing austerity cuts that its parliament approved last week, despite an economy already gutted by previous belt-tightening measures.

Finance ministers from the 17 countries that share the euro sealed the agreement in Brussels after 13 hours of negotiations. In a sign of the mutual mistrust that has deepened of late, the ministers demanded that Greece set up a special escrow account for money to be spent on servicing its debt and not on other public expenditures such as teacher salaries.

The agreement envisages a larger-than-anticipated contribution by private creditors to debt relief for Greece, to bring the country’s overall debt level down to 120.5 percent of gross domestic product by 2020. Creditors are expected to take a 53.5 percent write-down on their holdings of Greek bonds, up from the 50 percent being negotiated just a few days ago.

On top of that, Greece’s public creditors – central banks and the eurozone countries – also agreed to give Greece a break on its debt.

The eurozone countries will cut the interest that Greece has to pay for its first package of bailout loans to 1.5 percentage points over market rates from between 2 percentage points to 3 percentage points currently, cutting both its debt load and limiting the need for new rescue loans.

At the same time, the European Central Bank and the national central banks in the eurozone countries will also forgo profits on their Greek debt holdings.

None of the bailout’s elements, however, directly addresses the increasingly desperate need for a return to economic growth, without which Athens will find it impossible to pay off its debts. Greece is already into its fifth year of severe recession; last year, its economy shrank by nearly 7 percent.