Greece agrees €110bn rescue package
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Greece has agreed a rescue loan of €110bn (£95.2bn) with the International Monetary Fund and the European Central Bank.
The package is split between the two financial bodies, with the ECB offering €80bn at around 5 per cent while the IMF has lent Greece €30bn for three years.
The aim of the package is to help reduce the Greek budget deficit down from 13.6 per cent this year to 3 per cent of GDP by end 2014. Greece has agreed to additional fiscal measures worth around 11 per cent of GDP.
But the package is dependant on the Greek government enacting €30bn of austerity measures, including increasing VAT, cutting public sector bonuses, a freezing of state pensions and tax hikes in alcohol, tobacco and fuel.
The ECB has also confirmed that it was to suspend the rule preventing it from holding junk bonds on its balance sheet. The indefinite suspension applies to Greek debt alone, which was reduced to junk status last week.
Blackrock chief equity strategist for fundamental equities Bob Doll says investors may still be concerned that the events in Europe signal a disruption in the global economic recovery and an end to the bull market in risk assets.
He says: “Our answer to these concerns is no, and we expect that the coordinated and comprehensive IMF and EU packages should alleviate at least some of the issues.”
But Charles Stanley analyst Jeremy Batsone-Carr predicts that this bailout might not be enough to secure Greece’s future. He says Greece will almost certainly have to return to the market each year from 2014 to 2020 to borrow up to €35bn. He says: “The figure could be much higher depending on the rate of interest the ECB and IMF chooses to levy on the country.”
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