Euro area leaders thrash out Greece deal

Leaked document shows euro area leaders agree to extend maturities on Greece loans through European Financial Stability Facility; compares second bailout for Greece to Marshall plan
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Euro area leaders met in Brussels on Thursday to agree on a comprehensive package for Greece that is expected to include measures to extend maturities on loans to Greece, in what has been described as a "European Marshall Plan".

A leaked draft proposal, published by the Daily Telegraph, showed euro area leaders backed a move to lengthen the maturity of the European Financial Stability Facility (EFSF) loans to Greece from 7.5 years to a minimum of 15 years, with interest rates of about 3.5%. The EFSF will also be given the green light to purchase bonds in the secondary market.

The document, however, does not set any provisions for a debt swap or bond buyback, which has been mooted by some analysts, only saying that financial sector participants had indicated a "willingness to support Greece on a voluntary basis".

The statement called for a "comprehensive strategy" for growth and investment in Greece with structural funds reallocated for competitiveness and growth under a European "Marshall Plan". The Marshall Plan was a large-scale American programme launched in 1948 to aid European countries to rebuild their economies after the end of Second World War.

Euro area leaders also urged member states and the Commission to mobilise all resources necessary to provide exceptional technical assistance to help Greece implement its reforms. "Greece is in a uniquely grave situation in the euro area. This is the reason why it requires an exceptional solution," the statement said.

European markets reacted positively to the news. Greek five-year credit default swaps, the cost of protecting against a Greek default for five years, fell 217.9 basis points on Thursday to 2087.4bp at 15:00 London time, according to data provided by CMA Vision. The euro gained 1.6% against the the dollar and traded at €1.4145 to the greeback at 16:30 UK time on Thursday. Meanwhile, European equity markets closed at their highest levels in two weeks according to Reuters, with the Stoxx Europe 600 Banking Index up 4.1%.

The news came after reports on Wednesday that German chancellor Angela Merkel and French president Nicolas Sarkozy had agreed a common stance to address the Greece crisis. However, the door is still open for direct measures forcing private holders of Greek debt to take haircuts, which some speculate could lead to a selective default on Greek debt.

Euro area leaders are expected to announce further details of the plan later on Thursday.


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