Eurozone Finance Chiefs Set to Approve Greek Bailout

Posted March 12th, 2012 at 10:50 am (UTC-5)
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Finance ministers in the 17-nation euro currency bloc are set to approve Greece’s new $172 billion bailout, even as they grapple with concerns about Spain missing its deficit target this year.

Greece last week secured agreements with private creditors to eliminate $142 billion of the debt it owed them. That cleared the way for the finance chiefs meeting in Brussels Monday to give their assent to the Athens government’s second international bailout in two years. Greece says it needs the bailout to avert a default on its financial obligations later this month.

German Finance Minister Wolfgang Schaeuble said “there is no more doubt” that the rescue package will be approved, and that it will be signed later this week.

With Greece repaying its remaining debt over an extended period, the lenders will lose about three-quarters of their original investments on the country’s bonds.

Greece’s new bonds started trading at heavily discounted levels on Monday, about a quarter of face value. That signaled that investors remain wary of the debt-ridden country’s financial state and worry that it might not be able to carry out the sharp austerity measures the country has agreed to in order to win approval for the debt relief and bailout.

One London financial analyst, Louise Cooper at BGC Partners, contended that Greece’s debt level is still too high.

“The new bonds, the new Greek bonds are trading today for the first time and essentially they are trading like junk bonds, they are trading junk status. So effectively, if Greece was saved, its new bonds would not be trading like junk. They are trading at higher borrowing costs than Portugal, they are still trading at the highest yields in the whole of the eurozone, so very clearly, this is not a problem that has been solved. The biggest sovereign debt restructuring ever, and it still hasn’t been solved. Greece has still unsustainable levels of debt.”

Meanwhile, the finance ministers planned to seek explanations from Spain, the eurozone’s fourth largest economy, about why its deficit is expected to reach 5.8 percent of the country’s economic output this year. That is well above the 3 percent figure it had agreed upon with European leaders.

Italy, with the eurozone’s third biggest economy, confirmed that its economy has fallen into a recession, declining seven-tenths of a percent in the last three months of 2011, after a smaller slide in the third quarter. The Italian economy shrank with the government’s adoption of austerity measures to cope with its mounting debts.