Saturday, July 30, 2011

What eurozone leaders are doing about the debt crisis

by Herman Van Rompuy


July 30, 2011

A week ago the leaders of the euro area met in Brussels. We had two aims in mind: to ensure the financing of the Greek programme and improve the sustainability of the Greek debt, and to restore market confidence in sovereign euro debt. We took important decisions for the future of Greece and for the euro area as a whole. Probably for the first time we covered all the sides and angles of the debt crisis in the euro area. However, a number of misunderstandings have arisen over the past few days. Some are due to the complexities involved, some to the requirements of parliaments in certain member states, and some may even stem from positions taken in the markets. As a consequence I think it is useful to clear up a number of issues under discussion.

We wanted to address the concerns related to the sustainability of Greece's debt. Although the last review by the IMF, the ECB, and the European commission had concluded that this debt is sustainable, we decided to alleviate this burden. Our decisions were threefold.

First, we will provide additional funding to support the Greek programme up to 2014. Second, we lowered the interest rate on the public funds we are lending to Greece to close to our cost of funding (ie between 3.5% and 4%), and we extended their maturity from the current five years to a minimum of 15 years and up to 30 years with a grace period of 10 years. This will reduce the Greek debt by €25bn between 2011 and 2020, which will diminish the debt-to-GDP by 10%.

Third, we agreed upon and supported the voluntary involvement of private bondholders, with a menu of options (roll-over, exchange, buy-back) covering payments due up to 2020. The voluntary participation of private creditors – of which we previously aware that this would be considered as "selective default", and therefore cannot be considered as a surprise – is unique, unprecedented and restricted to Greece.


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