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Instant view: Greece bailout plan set at 109 billion euros
July 21, 2011 / 7:42 PM / in 6 years

Instant view: Greece bailout plan set at 109 billion euros

NEW YORK (Reuters) - Euro zone leaders agreed on Thursday that the private sector would provide a net 37 billion euros to a second bailout package for Greece, they said following a summit on Thursday.

KEY POINTS: * The total official financing for the second Greek assistance package will be around 109 billion euros, the statement said. * “The net contribution of the private sector is estimated at 37 billion euro,” the statement said, adding in a footnote that the figure took into account the cost of credit enhancements for the period 2011-2014. * The European Financial Stability Facility, the euro zone bailout fund, will provide longer-dated loans to Greece at lower interest rates. * The interest rate will be lowered to around 3.5 percent, the statement said, and the maturity of loans would be extended from 7.5 years to a minimum of 15 years and as much as 30 years.

COMMENTS:

RICHARD FRANULOVICH, SENIOR CURRENCY STRATEGIST, WESTPAC, NEW YORK:

“The most obvious question is how big the EFSF is going to be. It’s becoming like a slush fund now. There are a lot of details to be ironed out. But by and large, European leaders have gotten ahead of the crisis and for the time being, it seems this has removed the risk for the euro. The problems seem to have been dealt with for now. This doesn’t solve the long-term problem though. It all depends on how large the EFSF will be. Will it be big enough to bail out Italy, for instance, if it goes through a liquidity crisis? Again these are the questions. But for now, I would be a buyer of the euro on dips and the dollar a sell on rallies. Europe has announced plans to solve its problems, The focus is now on the U.S. to solve its own debt crisis.”

TODD COLVIN, FUTURES TRADER, MF GLOBAL SECURITIES, CHICAGO

”I think it’s a ‘kick the can thing,’ not too far down the road, you’re talking maybe end of third quarter or beginning of fourth quarter. They’re going to do it for Greece but it doesn’t sound like they’re going to do the same plan for Ireland and Portugal and perhaps down the road Spain and Italy. Because if they do it seems like there’s this bottomless pit of bailouts and haircuts and you’re not fixing anything.

“It seems the burden is going to fall not only on the central banks but also on the private sector. When we say private sector, I think of things like taxpayer dollars and corporations. They’re going to participate whether or not they really want to.”

KATHY LIEN, DIRECTOR OF CURRENCY RESEARCH, GFT, JERSEY CITY:

”I actually think that it goes a long way in solving the problems. Now, it doesn’t necessarily solve the problems for all of the PIIGS nations but at least for Greece there seems to be a concrete solution that can minimize contagion fears that would basically push the other PIIGS into the same fate.

“The euro was bid throughout the North American trading session. The market was already quite happy with the news that we had this morning which is that the EU is throwing everything including the kitchen sink at Greece.”

“Right now as further details are coming out, the talk of the European monetary fund is a very big deal because this could basically change the global financial architecture and provide a regional level of support for the European Union. And this support can be extended to Greece as well as Spain, Portugal, Ireland and Italy. So this is certainly I think a big step in the right direction. It still needs to receive parliamentary approval and that can be a challenge but at the end of the day it could be enough to put the crisis behind us.”

GORDON CHARLOP, MANAGING DIRECTOR AT ROSENBLATT SECURITIES IN NEW YORK:

“Any time uncertainty is removed from the marketplace, it’s an encouraging indicator. The issue of some of the countries in Europe potentially defaulting on their debt is troubling in terms of the stock market, in terms of their currency. We got some positive news that this situation is being corrected and improved, and that’s positive to markets. I think that’s one of the reasons the financials are a little bit better today.”

JASON WEISBERG, MANAGING DIRECTOR, SEAPORT SECURITIES IN NEW YORK:

“It’s one of those cliches that stay true in life: never say never. If Sarkozy says the Greek measure won’t be repeated for other states. Well, if Portugal goes and Italy goes Are they going to let those countries go? I would be the one to vote against it.”

WIN THIN, GLOBAL HEAD OF EMERGING MARKETS STRATEGY, BROWN BROTHERS HARRIMAN:

“This is really just kicking the can down the road. These countries need a serious hard restructuring. I do not think this is going away and debt swaps rarely work. The only time they do work is when the country comes roaring back and these countries are not growing. It is another band-aid and they will all go home and pat themselves on the back, but I am pretty sure three months from now or sometime down the road this situation will emerge again. They are still not doing what needs to be done, which is a serious debt restructuring.”

C.J. GAVSIE, MANAGING DIRECTOR, FX SALES, BMO CAPITAL MARKETS, TORONTO:

“We’ve not seen much of a reaction in euro/dollar, but keep in mind it has had quite a swing already today, so quite a bit of this was priced in. Overall, this is positive news. But I would not suggest they have addressed the longer-term issue. We’re still very interested to see how they handle the split between public- and private-sector participation.”

BRUCE BITTLES, CHIEF INVESTMENT STRATEGIST, ROBERT W. BAIRD & CO., NASHVILLE:

”There was a lot of fear that contagion would spread throughout the financial markets and send a jolt. But at least on the surface it looks like they bought some more time. They tried to do this before, but for now there’s calming.

”The markets are reacting to that and the potential that the U.S. debt ceiling will be resolved shortly.

”Today I think it’s European-driven. For the weekend bounce it’s a combination. Markets were oversold, a lot of fear from the debt ceiling debate and gridlock over the Greece situation. But those situations are apparently having some progress. I think the markets will continue to stay up here until we get a real hard agreement.

“I think the attitude and moves have shifted toward at least a non-damaging front.”

GENNADIY GOLDBERG, FIXED INCOME ANALYST, 4CAST LTD, NEW YORK

“It depends on how exactly it’s done, will it cut the debt of these counties? It has to be a long-term solution. It can’t just be piecemeal, it has to be big and change the fundamentals of this thing. If Greece still has 150-plus-percentage debt to GDP ratio then that’s not sustainable. But if any deal will decrease it that it should make it more sustainable longer term.”

MARK PAWLAK, MARKET STRATEGIST, KEEFE BRUYETTE & WOODS, NEW YORK:

“Sentiments had been so negative. Anything reasonable would be well received today. Without details, is this a solution to their problems? It’s hard to say. People got overly negative on the market, especially European financials. It could be enough to stem the bleeding, but it’s hard to say.”

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