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Victoria Mindova

The Greek foreign debt will decrease by € 100 billion after EU leaders and international banking organizations have agreed to haircut by 50% the Greek bonds held by private financial funds. Currently, the Greek foreign debt held by private investors is worth € 206 billion. € 103 billion will be cut and in the next three weeks, the Public Debt Management Agency will prepare the relevant scenarios. The head of the Agency Dimitris Hristodoulou explained that there were four main mechanisms to reduce the nominal value of Greek government bonds, but the specific offers would be made ​​individually before the end of 2011.

Besides the involvement of private holders of bonds, European leaders have decided that the institutional support of Greece will continue. By the end of the year, the European Commission and international financial experts will draw the new support programme for Greece, which will be valid until the end of 2014 and will be worth € 100 billion. Another € 30 billion will go for the recapitalization of Greek banks.

Following recent decisions, it is clear that Greece will receive institutional support loans from the euro zone and the International Monetary Fund totaling € 240 billion. € 110 billion were allocated to the Mediterranean country after signing the first Memorandum of financial aid in May 2010. The remaining amount of € 130 billion was approved this week and it should help Greece to "patch up" by 2014.

Along with taking the giant support, the country must finally undertake seriously with the structural reforms and have a primary budget surplus at the end of 2012. The banks’ curtsey definitely is not voluntary, but when faced with an ultimatum to "either cancel 50% of the Greek loans, or lose everything because the country will fail", they are left with not much of a room for maneuvers in negotiations. The ultimate goal is to make the foreign debt 120% of GDP in 2020 and Greece alone to cover its needs with no extra credit.

The new support programme will start to operate early next year and permanent supervisors will be appointed in Athens to monitor every day the work of local ministers in order to guarantee the implementation of the obligations Greece has taken.

After two years of sufferings, the failure of the first Memorandum of financial aid followed by the unfeasible austerity programme, the German Chancellor Angela Merkel has admitted that the plans for the Troika’s supervision missions every three months have not yield the desired results. She stressed that this programme would have additional supervising mechanisms for the implementation of reforms, which in the case of Greece turns out to be an indispensable measure. Even the representative of the European Commission Horst Reichenbach, who is well-disposed to the naughty Mediterraneans, said that when European taxpayers have invested a significant amount of money in the Greek recovery, the presence of the supervisory Troika is necessary.

In the general mood of frustration and anger, the Greek Minister of Finance Evangelos Venizelos said that the idea of appointing permanent supervisors in Athens, while implementing the support programme, was of ​​the Greek socialist government. He made this statement at an extraordinary press conference presenting the results of the summit and caused wry smiles in the present journalists, mainly because Merkel's statement about the constant surveillance in the Greek capital was already known.

Despite the presence of supervisors around the Greek ministers, Angela Merkel said that the programme was for Greece and the Greek authorities would be responsible for its implementation. The new programme will require the assistance of national experts who will work in close and constant cooperation with the Greek government and the Troika. They will provide advice and assistance in the planned processes to ensure timely and full implementation of reforms, reads the conclusion of the summit of European Union leaders. The experts will assist the Troika in assessing the compatibility of the measures taken by the Greek government under the programme commitments.

Greek banks will be provided with the necessary funds for recapitalization as they will not get away with it. Local financial institutions are the most affected by the haircut value of the foreign debt. They are holding a big package of government bonds in their portfolios and a 50% percent haircut would seriously impair their financial balances. € 30 billion are provided in support of the banks and the local economy will be stimulated by activating the privatization processes and the Sun programme (for sale of electricity from photovoltaic parks in Greece), which are expected to bring another € 15 billion to help the economic development.

Whether Merkel and Sarkozy’s plans for the development of the Greek crisis are correct is not yet clear. Some commentators have welcomed the new arrangement and others expect that the debt haircut will be deeper. The negotiations between the European leaders and banking organizations are going on and Greece is sitting on the stool of shame awaiting their judgment. The participation of the International Monetary Fund in the continued Greek rescue programme is not certain, but Europe has urged the financial institution to continue to play its role.