Eurozone Crisis Live: Deal Reached On Greece After All-Night Talks

Euro Toliet Roll

5.40am: Just realised that I missed a joke by Olli Rehn earlier.

Asked about the gruelling overnight talks, commissioner Rehn replied:

Marathon is a Greek word...I learned that the past two years.

5.25am: More details of the Greek government's press conference. It is planning to hold elections once the details of the new agreement have been voted through the Greek parliament.

Finance minister Venizelos also declared that the package should end fears that Greece will exit the euro, arguing the Greeks should "bring back your money to Greek banks".

5.01am: The Greek government is now holding a press conference in Brussels.

Prime minister Lucas Papademos says the deal is a "historic" moment for Greece. He confirms that an agreement has been reached on the 'basic conditions' of the Private Sector Involvement in the deal.

The Institute for International Finance is expected to hold its own press conference later this morning, which should shed light on the details.

Finance minister Venizelos is also speaking. He says that this is the first time that Greece is "reducing debt rather than adding to it".

4.53am: Olli Rehn also told reporters in Brussels that it "should be possible' to combine the resources of the European Stability Mechanism (the new European bailout fund), and the remaining funds within the European Financial Stability Facility (the current one), to form a "stronger firewall".

Will that firewall have total resources above €500bn, the previous maximum? Not currently clear.

And with that, the press conference is over. Jean-Claude Juncker invited the media to 'enjoy their breakfast'. After the overnight drama, I'd be surprised if many of them could get much food down.

4.46am: It's Q&A time, and journalists ask Christine Lagarde how much of a contribution the IMF will make to the new Greek package.

In response, Lagarde reply that the official communique refers to the IMF making a "significant contribution....Significant can mean lots of things".

In this case, we will not know until the second week of March, when the IMF board decides how much to provide.

The leaders are also asked whether they feel they made any mistakes with Greece's first rescue package.

Lagarde says that this second deal has a much stronger focus on competitiveness, including labour market reforms, to support economic growth in Greece wherever possible.

Olli Rehn also acknowledges that mistakes were made in the past, saying the the eurogroup underestimated the economic challenges facing Greece, and its "weak political unity".

4.39am: Now Olli Rehn, EC commissioner, confirms that the eurogroup have agreed to create a "segregated account" for Greece's second rescue fund. In other words, an escrow account, which will allow lenders to claw back the bailout if Greece misses its targets.

Rehn also spoke about plans for "strengthened monitoring" of Greece. It's not clear whether this is the 'permanent troika presence in Athens' which the Dutch finance minister demanded.

Christine Lagarde, head of the IMF, told the press conference that she "personally welcomed the agreement", which would give Greece the freedom to restore its economic competitiveness.

4.34am: The full statement from the eurogroup on Greece's second financial programme can be seen here (pdf).

4.28am: Jean-Claude Juncker also confirms that Greece's creditors will take a nominal haircut of 53.5%. That's up from their previous final offer of 50%.

Greece will now formally launch this offer to its lenders in the "coming days", he added. Previously, the PSI window was meant to open on Wednesday.

In addition (as rumoured) the interest payment charged on Greece's existing loans will be cut.

And, national central banks will pass on any profits they make on their holdings of Greek bonds.

Juncker said the programme provides:

a comprehensive blueprint for putting the public finances and the economy of Greece back on a sustainable footing and hence for safeguarding financial stability in Greece and in the euro area as a whole.

4.21am: The press conference in Brussels has just begun.

Jean-Claude Juncker, head of the eurogroup, confirms that a deal has been reached on a new financial programme for Greece, and the details of the Private Sector Involvement (the reduction in Greece's debt pile).

Juncker tells the assembled media that the package will bring Greece's debt-to-GDP ratio down to 120.5% by 2020, with a new €130bn of government financing running until 2014.

More to follow.

4.11am: Once the press conference begins in Brussels, you'll be able to watch it here....

4.10am: Mario Draghi, head of the European Central Bank, has declared that the deal secured in Brussels is "a very good agreement". He declined to comment, though, on the ECB's involvement in the plan.

4.02am: The new report into Greece's debt sustainability, which leaked last night (and which the Financial Times runs on its front page today) has now been uploaded to the internet.

As blogged last night, the analysis - produced by Greece's troike of lenders - warns that Greece's macroeconomic outlook has "deteriorated significantly", meaning it cannot hit its former targets.

3.53am: In Brussels, journalists warn that the details of the Greek deal may not emerge for a little while:

3.43am: EU officials are continuing to brief journalists in Brussels about the details of the deal reached overnight.

It's all unofficial at this stage, but here goes....

There are several reports that Greece's private creditors have bowed to pressure and accepted a deeper haircut, raising their losses (based on the nominal value of their bonds) from 50% to 53.5%.

Those creditors could also accept a coupon (the interest payment on new Greek bonds) that rises in stages over the next few years. That would cut Greece's repayment costs in the short-term, but also allow its lenders to benefit if its economy recovered.

There's also a rumour that the interest rate that Greece is being changed on its original rescue package will be cut. That could set a precedent for Ireland and Portugal (which is already rumoured to be heading towards its own second bailout).

The third issue - what happens to the 'profits' which the European Central Bank has theoretically made on its Greek bonds (assuming they redeemed at full value). It appears that those profits will be funnelled back to Greece, via other eurozone government.

3.18am: While we wait for details of the deal that has apparently been hammered out in Brussels (see 2.55am), here's a summary of events since Monday morning (when this live blog started):

An agreement over Greece's second financial package has reportedly been reached after more than 12 hours of negotiations, involving finance ministers from the eurozone, Greece leaders and its creditors.

Discussions hinged on the issue of the losses that Greece's creditors are being asked to take. The Institute of International Finance, which represents the banks, had come under pressure to accept an increase in the "nominal value" of its writedowns from 50% to 53%.

The talks began optimistically, but were soon rocked by the Dutch finance minister. He told reporters that he wanted Greece's lenders, the troika, to take up permanent residence in Athens to oversee the country's budgets.

Then, last night, confidential details of the troika's latest report into Greece's debt sustainability emerged. They showed that Greece was on track to miss its debt reduction targets by 2020, unless private creditors and/or national governments and the ECB made a larger contribution.

3.04am: If, repeat If, there is a deal (see 2.55am) then the key question is how?

Specifically, we learned some hours ago that Greece is on track to miss its debt/GDP targets for 2020 (see 11.16pm).

So to get that ratio down to 121%, as Reuters reports, someone has taken a larger loss. Is it the private creditors? And is the deal still voluntary?

2.55am: Heads-up -- there are reports that a deal is coming.

Reuters just snapped that an EU official has said finance ministers have "struck a deal" on the Greek package, worth €130bn, under which Greece's debt-to-GDP ratio would fall to 121% by 2020.

The official added that:

Now it's down to work on the statement.

The news has sent the euro bouncing back to $1.325 against the US dollar, clawing back the half-a-cent it gave up since the talks began to falter...

More as we get it...

2.37am: The Greek bailout talks have entered their 13th hour -- they kicked off at 2.30pm GMT.

As we reported all those hours ago, the leaders appeared in jovial mood -- shaking hands and sharing jokes. That cheerfulness feels a long time ago now.

2.28am: The European Commission's website has been promising for several hours that Jean-Claude Juncker, head of the Eurogroup, and Olli Rehn, European Commissioner for economic and monetary affairs, would hold a press conference.

This is still being advertised, with "Timing Unknown". Unless that changes, we must assume that the pair will speak to the media at some point.

2.21am: The negotiations continue in Brussels.

An official tells Dow Jones that Greek officials, and the Institute for International Finance have are rejoining Eurozone finance ministers for another bout of talks.....

1.55am: Asian stock markets are performing well despite the lack of a deal in Brussels. After falling at the start of trading, the Nikkei has now climbed into positive territory, up 10 points at 9,495.

That may indicate that we won't see a heavy selloff in London when trading resumes in, umm, just six hours time. Although, by then, we may actually have a Deal, or No Deal.

1.44am: Just a handful of journalists are still active in Brussels now. Faisal Islam of Channel 4 News reports that he can now only see colleague (and Lego enthusiast) Ben King, Peter Spiegel of the Financial Times, and Bruno Waterfield of the Daily Telegraph.

There may be a few more intrepid hacks still on parade – Luke Baker of Reuters tweeted that it still had two operatives active, and Marco Zatterin was also active on Twitter – but the press centre looks pretty deserted:

1.35am: Matina Stevis of Dow Jones and the Wall Street Journal has another theory for the protracted talks – finance ministers may not actually have the authority, on their own, to agree a deal with Greece because the agreement is now quite different:

1.16am: Channel 4's Faisal Islam says he's cracked why the talks keep being postponed. He explains:

Had it confirmed now, that they keep on pausing the meeting to allow the Greeks to go talk to the bankers over bond haircuts. 3 times.

Presumably the International Institute for Finance (IIF), which represents Greek creditors, is reluctant to accept an even larger haircut on these bonds?

In fact, there are also quotes from Charles Dallara, head of the IIF, that a 50% cut in nominal value is the IIF's final offer. The eurogroupo was looking for this to rise to 53%.....

12.49am: In Brussels, diplomats tell our man David Gow that "We're slowly moving in the right direction".

No argument about 'slowly'. 'Right direction' is more debatable.

David continues:

This means agreeing how to keep fiscal tabs on the Greeks, trimming more hair from the heads of the private bondholders (55% of face value?) and ensuring the bailout is €130bn, not €136bn or more.

Our Dutch hardliners, backed by the Germans, are trying to drive the debt-to-GDP ratio back down to that magical 120% level....But, these diplomats warn, they "can't say when it'll all come together..."

12.41am: Delighted to see that some readers are still commenting below. I'm afraid we don't have many new developments. Talks continue.

Bloomberg has found an upbeat official, who declared that there are "Good prospects for reaching a deal... though more talks are necessary."

As mentioned earlier, the talks are thought to be focused on the size of the haircut taken by Greece's creditors.

Reporters at the scene say that the eurogroup talks have just paused again.....

12.10am: A new day dawns. And the eurozone debt crisis is little closer to being resolved.

There's no sign of an imminent announcement – Faisal Islam is now offering a prize for whoever can guess the start time. Meanwhile, his colleague at Channel 4 News, Ben King, reports that the press bar has closed.

UPDATE: David Gow reports that disgruntled hacks are convinced that "ministers are quaffing at taxpayer expense upstairs...."

That won't improve the mood.

11.50pm: The FTSE 100 is tipped to open 20 points lower on Tuesday morning (that's via Josh Raymond, chief market strategist at City Index). Josh warns, though, that the uncertainty in Brussels means things could well change by 8am.

He adds that Asian markets are expected to open calmly while the euro crisis plays out:

11.41pm: The euro has lost almost half a cent against the US dollar in the last 90 minutes, as the lack of firm news out of Brussels worries traders.

From almost $1.325 against the dollar at 10pm, it just dropped below the $1.32 point. Not a massive move, of course, but a sign of concern. City analysts have suggested the euro could slide back towards $1.30 if the rescue talks unravel.

11.34pm: An update on the Greek polling data I popped into the blog earlier (see 10.38pm): it's now clear that support for the two pro-bailout parties (New Democracy and Pasok) have hit a record low (at 19.4% and 13.1% each).

Helena Smith explains from Athens that if the poll results were replicated at an election, no party would be able to form a majority government. She continues:

With general elections due in Athens in April, Greece's increasingly febrile political landscape has become a major fear for 'troika' officials.

Lead by Germany, euro zone hardliners have voiced growing reservations about giving rescue loans to a country whose government may soon be unable, or unwilling, to deliver on reforms needed to make the moribund Greek economy more competitive.

11.27pm: David Gow, our man in Brussels, says the very latest word is that negotiations are now focusing on the details of the Private Sector Involvement in the Greek financial package.

11.16pm: Tomorrow's print edition of Financial Times is splashing on the details of the Greek debt sustainability report that leaked this evening.

The FT, which graciously notes that Reuters got the story up first, also has the report and says the troika's worst case scenario (where Greek debt remains at 160% of GDP in 2020) would mean that Greece would need a bailout of €245bn.

The FT's Peter Spiegel explains:

Even under the most favourable circumstances, Greece could need an additional €50bn in bail-out aid by the end of the decade on top of the €136bn in new funds until 2015 being debated at a crucial eurozone finance ministers' meeting on Monday night. That "baseline" scenario includes projections that the Greek economy will stop shrinking next year and return to 2.3 per cent growth in 2014.

"The Greek authorities may not be able to deliver structural reforms and policy adjustments at the pace envisioned in the baseline," the alternate scenario warned. "Greater wage flexibility may in practice be resisted by economic agents; product and service market liberalisation may continue to be plagued by strong opposition from vested interests; and business environment reforms may also remain bogged down in bureaucratic delays."

10.56pm: A couple of UK economists are still awake, and unimpressed by the Brussels wrangling.

Sony Kapoor, director of the Re-Define think tank, argues that the Troika is playing "arithmetic gymnastics" in an attempt to make the Greek numbers add up - an exercise requiring some suppleness:

Shaun Richards, an independent economist, warns that the private sector debt deal will not be enough to rescue Greece, whatever the terms:

10.51pm: Various rumours coming out of Brussels – including that private sector creditors are willing to take a larger haircut (a nominal loss of up to 53%, from 50% previously).

It also appears that the eurogroup is back at it, after a one-hour rest:

10.38pm: New polling data from Greece tonight shows that New Democracy, the centre-right party, remains the most popular party, with Pasok (the socialist party that ran the country until last November) clinging onto second place.

Here's the numbers from pollster GPO (with thanks to @EfiEfthimiou)

ND: 19.4%, Pasok: 13.1%, Dem.Left: 12%, Communists: 9.5%, Syriza: 8.5%, Laos: 5.1%.

10.19pm: Reuters is reporting that there's another sticking point, on top of the private sector involvement (see 10.08pm) -- the issue of the European Central Bank's holdings of Greek debt, and what would happen to the 'profits' it could make on these bonds if they were redeemed at face value (not the distressed prices at which the ECB bought them).

Those 'profits' (which some economists suggest are fanciful anyway), could be fed back to fund the shortfall in Greece's bailout. As reported at 7.58pm, that could trim Greece's debt-to-GDP ratio by 5.5 percentage points by 2020, or over half the shortfal....

10.08pm: Well, the press conference scheduled for 11pm CET didn't happen.

But, Greek sources whisper to David Gow, a lot of the outstanding issues have been cleared up, but several still remain:

above all, the scale of the "haircut" private bondholders will have to endure in order to co-finance the deal (70 or 72% or...) and the level of surveillance/monitoring ("permanent troika presence") the Greeks will have to suffer at the hands of Brussels, Frankfurt and Washington. As ever, it comes down to Private Sector Involvement (PSI) - as in October...

9.44pm: While they wait, members of the UK media are entertaining themselves with a map of the European Union made out of Lego (hat-tip Faisal Islam of Channel 4):

9.41pm: No sign of action in Brussels yet, leading to much speculation that the press conference due at 10pm GMT /11pm CET may be delayed...

... or even be a damp squib. Some EU insiders were predicting last weekend that talks would run into the small hours - and that a final decision could be delayed until the upcoming EU summit on 1 March.

9.19pm: From Athens, Helena Smith says that the Troika's debt analysis report (see 7.58pm and onwards) will confirm the worst fears of many Greeks:

This is the first time that Greeks have actually glimpsed snippets of the Troika report following a tense, month-long visit to Athens by inspectors from the EU, ECB and IMF.

Their findings show that the measures meted out by the country's creditors are not working. Instead of reining in Greece's runaway deficit and debt the "austerity through growth" policies are exacerbating the plight of Greece and its people. The argument that failure to implement structural reforms plays a major role in this catastrophic state of affairs would hold water if the figures weren't so bad.

Productively would doubtless have been improved if reforms, such as the opening up Greece's closed professions, had been applied.

Incidentally, some of the details of the troika report did leak over the weekend (including the baseline scenario that Greece's debt/GDP would still be 129% by 2020).

9.00pm: Word from Brussels is that there'll be a press conference at 11pm CET, or in around an hour's time......

8.27pm: In summary, the troika (the IMF, EU and ECB) is arguing that Greece needs extra help from its private creditors or the region's policy makers (and ideally both) to get its debt reduction strategy on track.

Reuters is now running quotes from the nine-page, confidential report.

There is a fundamental tension between the program objectives of reducing debt and improving competitiveness, in that the internal devaluation needed to restore Greece competitiveness will inevitably lead to a higher debt to GDP ratio in the near term.

In this context, a scenario of particular concern involves internal devaluation through deeper recession (due to continued delays with structural reforms and with fiscal policy and privatisation implementation)

This would result in a much higher debt trajectory, leaving debt as high as 160 percent of GDP in 2020. Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it.

"Accident-prone" may be another one of those euro under-statements.

Update: Reuters story is now online. It's currently unbylined, but my terminal attributes it to Jan Strupczewski in Brussels.

8.09pm: Here's the killer line from the troika's report into Greece (see also last post):

Greece may not be able to deliver reforms at the pace required under the [new] baseline scenario

And another warning: the recapitalisation of Greece's banks may now need to be raised to €50bn. The previous estimate, I believe, was €40bn.

7.58pm: Reuters has got hold of the troika's debt sustainability analysis of Greece's debts.

As feared, the report finds that the baseline scenario is now that Greece's debt-to-GDP ratio will only fall to 129% by 2020, not 120% (which itself only brings Greece into line with Italy today).

Worse -- should Greece's recession deepen, and structural reforms not be implemented, the ratio could still be at 160% in eight year's time (that's the worst case scenario).

The troika goes on to suggest ways that the European Central Bank, and others, could bring Greek debt down to the 120% target. They are:

Restructuring accrued interest on Greek bonds. That would cut the ratio by 1.5 percentage points.
A lower interest rate on existing bilateral loans. Cutting another 1.5 percentage points of the debt/GDP ratio
Restructuring the Greek bond portfolios of the various eurozone central banks. That could cut the debt/GDP ratio by 3.5 percentage points.
The ECB could give up "profits" on its Greek bonds. That could save 5.5 percentage points.

7.54pm: There is also chatter in Brussels this evening about a letter signed by 12 European government heads, including Britain's David Cameron, Italy's Mario Monti and Spain's Mariano Rajoy.

The missive lays out an eight-point plan to boost GDP in the region. But most of the attention tonight focuses on the two names absent from the letter – Angela Merkel and Nicolas Sarkozy

The German chancellor and French president traditionally launch the "call to arms" before an EU summit, points out David Gow from Brussels. So, does this mean that the pair could be ambushed at the next gathering, on 1 and 2 March. Is the rest of Europe staging a revolt against the Franco-German alliance at the heart of the EU?....

You can see the full text of the letter over on the Telegraph.

7.38pm: Germany, like the IMF and the Dutch, is resisting pressure to allow Greece's target of a debt-to-GDP ratio of 120% by 2020 to slide higher.

A German source told David Gow, our man in Brussels, that "Debt sustainability is a key issue for us too".

7.15pm: Dr Gerard Lyons, chief economist and head of global research at Standard Chartered, puts his finger on the reasons behind the ongoing haggling – Greece is missing its targets because its deep austerity measures have driven it into a harsh recession.

Lyons told the Jeff Randall Live show on Sky News that the package on the table in Brussels "won't work at all".

Europe doesn't have a debt problem, Europe has a growth problem.

For proof, look at the last GDP data from the eurozone – which showed that the region shrank by 0.3% in the last quarter of 2011. Peripheral countries face further contraction this year.

The fact that Greece now threatens the stability of the eurozone is a sign of the way that Europe's leaders have mishandled the crisis, Lyons added.

7.08pm: Sky News asks the €130bn question – will we get a decision tonight? Its reporter in Brussels, Robert Nisbet, isn't confident.

Nisbet warns that optimism has been fading since Dutch finance minister Jan Kees de Jager caused alarm by saying he supported a "permanent Troika" representative in Athens (see 3.06pm)

Reports that the Greek government is trying to persuade its lenders to take a larger cut on their bonds (see 6.56pm) have added to concerns. As Nisbet explains:


There is concern that the whole deal isn't big enough to get Greece out of the woods.

6.56pm: Another snippet from Athens – talks are taking place between the Greek finance ministry and its debt-holders over the possibility they could increase their participation in the debt swap.

That, we think, is a proposal to increase the headline haircut on existing Greek bonds above 70% – which was as far as the banks were prepared to go....

6.46pm: There's a report on the wires that the International Monetary Fund is in dispute with eurozone officials over Greece's funding gap. This is the difference between the €130bn programme on the table, and the amount Greece actually needs (perhaps €136bn).

Dow Jones says that some €-zone ministers are prepared for Greece's debt-to-GDP ratio target for 2020 to slide above 120%. The IMF, though, won't budge:

6.19pm: Interesting example of industrial unrest in northeast France today, where an idle ArcelorMittal steel plant was occupied by its workers.

Some 200 employees embedded themselves in management offices at the factory in Florange, in protest at ArcelorMittal's decision to extend a temporary shutdown at the site, which operates two blast furnaces.

As this photo shows, workers representatives held a press conference inside a meeting room at the plant, which employs around 5,000 workers.

The protesters are planning to install a tent village, suggesting that the site could become a political headache for Nicolas Sarkozy as the presidential race heats up.

5.59pm: Italy's central bank governor, Fabrizio Saccomanni, has denied this evening that a Greek default would mean the end of the eurozone.

Saccomanni, who took over from Mario Draghi late last year, also claimed this evening that the spread (or difference) between Italian and German bond yields was excessive. Because (wait for it) German 10-year rates are "unreasonably low".

Ten-year bunds just closed for the day at a yield of 1.96%, while the Italian equivalent closed at 5.46%. That makes a spread of 350 basis points – much better than the 500bp spread experienced last November.

5.15pm: Over in Portugal, an opposition party has broken ranks over the country's austerity package.

Antonio Seguro, leader of the Socialist party, said today that he had told inspectors from the Troika that Portugasl needs more time to hit its targets. Seguro told reporters in Lisbon that:


We affirmed our conviction that it is desirable that Portugal gets at least another year to consolidate its public accounts.

The Socialist party agreed a rescue package from the International Monetary Fund last year, and lost the subsequent general election.

Portugal has hit its targets, so far, but some economist fear it, like Greece, will require a second rescue packge.

Adelino Maltez, political analyst at Lisbon Technical University, told Reuters that Seguro is probably playing a political game – calculating that Lisbon must eventually renegotiate its terms:


They know that the government will eventually have to ask for an easing of the bailout terms and they are playing in anticipation, to win popular support as they rise in the polls and later claim credit for the position.

4.43pm: The FTSE 100 just closed at its highest level since 8 July 2011, on hopes that tonight's meeting will end well.

The blue-chip index finished 40 points higher at 5945. Other European markets also posted gains, with the Spanish IBEX jumping by 1.8%.

Chris Beauchamp of IG Index commented:

The general consensus is that today's chin-wag will see ministers agree to chuck another €130 billion in Athens' general direction, perhaps because the alternative is simply too awful to contemplate.

That's been the City's default position for a while – thus the FTSE's steady rally in recent weeks.

Wall Street is closed today (it's President's Day), so the eurogroup needn't worry about stock market reaction to their decisions until Asia opens tomorrow morning.

4.28pm: Further proof that the Dutch delegation are playing hardball in Brussels, from David Gow:

In circles close to Jan Kees De Jager the language is pretty blunt: "We're not signing up for a deal that gives €138bn, not the agreed €130bn. Nor can we allow the debt-to-GDP-ratio slip to 125% or 129% rather than 120%. We won't sign for this," his friends say.

The €138bn figure refers to the shortfall betwen between the size of the agreed bailout, and the amount that Greece now needs. If the Dutch won't accept an enlarged contribution from the EU, that would imply a greater contribution from the private sector.

David also reports that there are fears that today's meeting could drag on for some hours....

4.12pm: Ben May of Capital Economics warns that any deal agreed today in Brussels could quickly "unravel", with troubling consequences for the global economy:

From Capital Economics' latest research note:

The advanced economies appear to have started the year strongly, led by the US, but the recovery is not yet secure. Growth could still be derailed by fiscal policy tightening, debt deleveraging, further near-term strength in oil prices and, above all, a renewed escalation of the crisis in the euro-zone

3.44pm: The start of this afternoon's eurogroup session resembled a gathering of old friends rather than a crucial meeting that would decide the future path of the eurozone.

Here, Lucas Papademos and Wolfgang Schäuble shake hands and share a joke with Evangelos Venizelos, while Jean-Claude Juncker enbraces François Baroin.

Hard to believe that Schäuble was public enemy number one in Greece last week after saying that the country was a "bottomless pit".

3.34pm: This afternoon's crunch meeting in Brussels is well underway now. Looking at the photographs from the event, the key players were remarkably calm.

This picture shows Jean-Claude Juncker, head of the eurogroup, talking with Greece's PM Lucas Papademos just before the meeting began.

There's a definite contrast from the previous Eurogroup meeting, when ministers rebuffed Greece's claims that they had reached an agreement and sent Evangelos Venizelos back home to find €325m of outstanding savings.

Of course, it's not clear whether Papademos and Juncker had heard the Dutch proposal for a permanent Troika presence in Athens (see 3.06pm)

3.06pm: The Dutch finance minister has revealed that he wants a "permanent Troika presence" in Athens, in return for the second finance package.

Jan Kees de Jäger made the comments, which throw the Greek crisis into fresh uncertainty, before the talks began in Brussels. He appears to be insisting on the European Union, the European Central Bank and the International Monetary Fund having a fixed role within the Greek capital in the years ahead:

Surely this is a step too far for the Greeks?

Faisal Islam also asked de Jager whether a hypothetical "permanent troika" would have the power to veto future Greek budgets. The reply is a classic:

De Jager: " of course a country remains to some extent always sovereign..."

2.41pm: Another interesting quote from Brussels, via Faisal Islam of Channel Four News. He asked Belgium's finance minister whether Greece has "done its homework" ready for today's meeting. In reply:

Greeks have done their homework so far, but I think it's crucial that they do their homework in the weeks and months to come.

But Dutch finance minister Jan Kees de Jager is more concerned with today's assignment, warning reporters in Brussels that the second programme for Greece cannot be agreed until it has met "all its obligations", adding:

There has to be rigid and very strict implementation by Greece of our demands.

Ed Conway, Sky's economics editor, isn't too impressed by de Jager's tough talk:

2.34pm: Just in -- the European Central Bank bought exactly zero government bonds last week, the first time that its securities markets programme has been inactive since last August.

During the heady days of November, the ECB was mopping up billions of dollars of peripheral eurozone debt in a week – in an effort to keep Italian and Spanish bond yields down. Those yields are much lower today – at 5.4% and 5.1% respectively – reflecting how both country's debt has strengthened in recent weeks.

One reason for that is the nearly €500bn of cheap loans made by the ECB to European commercial banks last December. Another round of loans are due next week, and economists expect a repeat. No reason for the ECB to do both?

2.25pm: Wolfgang Münchau's warning in the FT today that Greece must default (see 12.13pm) is attracting heavy attention in the Greek media today, where his grim predictions have found plenty of support.

Helena Smith, our Athens correspondent, says that Münchau's analysis of what awaits Greece, even if the deal is done and dusted, has not been lost in translation. Skai news, the leading broadcaster, referred to the Financial Times' commentator as being "extremely caustic about the intentions and actions of Germany regarding Greece."

Helena continues:

More than ever Greeks know they are up against a wall - they have lost this war and something has to give. Salvation today will come at a heavy price. In the cradle of democracy the view I am hearing, more and more, is the price will be democracy itself as the country is gradually forced to give up any say in the running of its own affairs, instead turning to the besuited men and women brought in from abroad who will shortly be installed at each and every ministry with utlimate budgetary control. The French and Germans, I hear, are already fighting over which portfolios they will get.

"What we are seeing is capitalism in motion at any cost," says Theodore Pelagidis, professor of economics analysis at Pireaus University. "Forget about political dignity or human rights. We've gone back to the era of mercantilism where only profits count."

As soon as Greece's (unelected) prime minister Lucas Papademos returns from Brussels, he will begin the arduous process of passing scores of reforms. In one of his first moves pensions above €1,300 will be cut by a further 12%. But it won't be easy. When all is said and done, workers will lose three out of 14* monthly salary payments they get per year, according to the financial daily Naftemporiki in a country where prices, like inflation, have remained stubbornly high.

"They want us to do what Pinochet did in Chile, fire civil servants and take very painful steps overnight," a government official told me. "If we didn't live in a democracy we could do that. The fact is people react, they will resist and that's why we can't do these things overnight. Our lenders know this and they should have given us more time to enact reforms. "

* - the 14 monthly payments includes the additional salaries currently paid at Christmas and Easter, which are now being abolished for many workers.

2.10pm: A few highlights from the 'arrivals lounge' in Brussels.

Christine Lagarde, head of the International Monetary Fund, was optimistic, saying that Greece has made "significant efforts":

now we need to continue the work and that the entirety of the elements, particularly furnished by the other parties, are also put into place.

But Austrian finance minister Maria Fekter said there must be "intensive debate" about how Greece's compliance will be monitored:

If Greece does not implement the measures we have asked for then it won't be able to return to growth.

Fekter added:

It should not happen again, what happened in the past, that billions go to Greece and it is put into consumption and that no infrastructure, no modernisation of the state and no regional development is created.

Luxembourg finance minister Luc Frieden agreed that the issue of monitoring was important, saying Europe needed:

a system of supervision which ensures that, together with the Greeks, this programme is implemented after the elections.

1.52pm: Update from Athens -- around 200 high school pupils held a protest outside the Greek parliament today, in protest at Greece's austerity measures.

According to local reports, they blocked a road outside the parliament and briefly scuffled with a car driver.

1.41pm: Germany's finance minister, Wolfgang Schäuble has told journalists in Brussels that he expects to reach an agreement on Greece's second financing package (that's via Reuters)....

1.25pm: The euro has gained almost a cent against the US dollar today, to $1.3265.

Ilya Spivak, currency strategist at DailyFX, reckons that the euro will strengthen if the Greek package is agreed today, but probably lose ground once the details emerge, and traders calculate the consequences for the rest of the eurozone periphery:


The long history of flawed fixes to the debt crisis unveiled over the past three years suggests that the very existence of an agreement is likely to prove initially supportive for risk appetite, largely regardless of its merits.

With that in mind, the chipper mood is likely to carry forward at least into tomorrow, when markets begin to pick apart the details for precedent-setting items that can be applied to other debt-strapped nations.

1.03pm: Jean-Claude Juncker, the prime minister of Luxembourg, is one of the first ministers to arrive at today's meeting in Brussels.

Juncker, who also chairs the eurogroup, turned up clutching a thick bundle of documents. He spoke briefly to the assembled media, saying:

I am of the opinion that today we have to deliver, because we don't have any more time.

Juncker added that no-one intends to "expel Greece from the eurozone".

12.52pm: My colleague David Gow is covering the Eurogroup meeting this afternoon. He reports (as only he can) that:


It's a gloriously sunny day in Brussels where, as in the rest of Catholic Europe, they're celebrating carnival week and schools etc are closed...Not the Berlaymont, theEuropean Commission headquarters, where there's a mood of genuine optimism that the eurogroup of 17 finance ministers will approve the €130bn second bailout for Greece when they meet later on today across the road at the Justus Lipsius building. (The council of ministers, including summits, are getting their own new building just down the rue de la Loi: no expense spared!)

If the Greek debt/default saga is a series of marathons and we're in the last mile of this one, as Olli Rehn's spokesman put it earlier today, then we're just about to enter the stadium for the final lap. There are, as always, one or two hurdles such as the ECB giving up some of its nominal profits on its holdings of Greek bonds, screwing the private bondholders a bit more and getting that nice Christine Lagarde to be less miserly in the IMF's contributions to the bailout than she's planned up to now. But, several sources have reassured me, the deal is all but done and dusted.

But.....

There is, of course, a wee problem: the package has to be ratified by the 17 countries, including by three parliaments, I'm told. They just happen to be...those of Germany, the Netherlands and Finland, the triple-A rated euro zone members and big-time payers, which have been hardest to win over. "They'll vote for it in the end," said one official, pointing out that the alternative - a Greek default causing a tsunami of runs on banks, company failures, recession, unemployment, including in those three countries - is even more unpalatable.

Later, the 17 euro zone finance ministers will be debating what to do with the two bailout funds, the current EFSF and the pending ESM, that lots of people have forgotten about - the rescue funds that were supposed to prevent contagion with a €1 trillion firewall but, combined, could amount to €650bn or a shade more. They'll most likely leave that decision to next week's summit...

12.41pm: The Jubilee Debt Campaign held a demonstration outside the European Commission's office in London today, in protest at the terms of Greece's second financial package.

The campaign, which was created to lobby for debt relief for the third world at the turn of the last millennium, argues that Europe now risks 'enslaving' Greece. Only the financial sector will benefit from the programme being discussed in Brussels today, argues campaign manager Jonathan Stevenson:

What is happening in Greece today mirrors what has been happening in the developing world for 30 years – unaccountable international institutions demanding a pound of the people's flesh in exchange for bailing out banks and rewarding speculators.

This package only bail-outs the banks - indeed proposals on the table at the moment suggest that Greece will not even see most of this money - it will be paid to the 'creditors' through a separate account*. In this light, the austerity measures seem to be no more than a sadistic punishment which even some of those pushing it know very well will have only a detrimental impact on Greece's economy.

* - the escrow account, which France and Germany are both pushing for (see 8.51am)

Jubilee in arguing for "debt cancellation in Europe, including transparent debt audits, steep and democratic write-down of debts, regulation of financial institutions and social control of banking".

Were that to happen, though, the banking sector would be hit with huge truly writedowns – along with central banks and even the European Central Bank, who all hold large quantitites of government debt. Ultimately, those assets stand behind individual savings accounts and pensions.

12.13pm: Two articles on Bloomberg and the Financial Times take a very different view of Angela Merkel's performance during the crisis.

For Bloomberg, Merkel is acting like a 21st century Margaret Thatcher. Dubbed "Europe's Iron Lady," the chancellor has rejected calls for Greece to leave the euro, or for Germany to provide more support:

Merkel may be homing in on her platform for the election next fall: enforcing the budget discipline that Germans want, while fending off the breakup of the euro area as too risky to contemplate for a country that has staked its post-World War II role in Europe on promoting consensus. She has quashed an anti- euro groundswell in her coalition, saying the solution is "more, not less, Europe."

But in the FT, Wolfgang Münchau accused Germany of acting unethically by meddling in Greece's political affairs, and attempting to dictate its future governance. To escape, Greece must default, he says:

When Wolfgang Schäuble proposed that Greece should postpone its elections as a condition for further help, I knew that the game would soon be up. We are at the point where success is no longer compatible with democracy.
The German finance minister wants to prevent a "wrong" democratic choice. Similar to this is the suggestion to let the elections go ahead, but to have a grand coalition irrespective of the outcome. The eurozone wants to impose its choice of government on Greece – the eurozone's first colony.

11.53am: Evangelos Venizelos's claim that Greece's long period of uncertainty will end today (see 10.02am) may be optimistic, as there are several issues outstanding:

1) Is the package big enough? The Greek economy has deteriorated since it was agreed last autumn, meaning a €6bn gap has opened up. Greece now needs at least €136bn, and today's meeting must bridge the gap.
The FT suggests this morning that the money could come from the European Central Bank, from the "profits" it has made on Greek debt. That only works, though, if the ECB gets the full face value of bonds it bought at distressed levels on the bond markets.

[there's a good explainer on the ECB bond swap here, by Open Europe]

2) Will Greece's private creditors agree to take part in the debt restructuring? The Private Sector Involvement (PSI) is scheduled to begin on Wednesday, and run for 10 days. There are fears that the voluntary process may not attract enough support, prompting rumours that Greece could retrofit 'collective action clauses' allowing them to force creditors into accepting losses.

3) Will eurozone governments agree? Once the Eurogroup declares that Greece has met the terms of the restructuring deal, it must be passed by national parliaments. The Bundestag is due to vote on 27 February.

4) How much support will the International Monetary Fund provide? There are reports that the IMF will only take a smaller share of the burden this time round – perhaps 10%, compared with 30% for Greece's first package.

And overshadowing everything, the question of how Greece's economy will perform this year, and beyond.

As Gary Jenkins of Swordfish Research commented:

The story does not end with the extension of the second bailout package as there is likely to be much closer monitoring of the Greek fiscal situation and who knows how the upcoming elections could change the landscape. This one will run and run….

Partly because, even if the financial package is agreed, Greece's debt to GDP ratio is still not expected to fall to 120% by 2020, as targeted, but 129%.

11.26am: Developments in Brussels, where EU spokesman Amadeu Altafaj is briefing the media about this afternoon's talks.

Altafaj said we have reached the "last mile" in covering the gap in Greece's 2012 budget, and that the Athens government must explain how this shortfall has been covered.

(Over the weekend, Lucas Papademos's cabinet agreed yet more austerity measures that, it says, makes up the €325m that was outstanding).

Interestingly, Altafaj also said that the eurogroup of finance ministers meeting in Brussels are preparing for Euro leaders to take a final decision on Greece's rescue package on March 1.

Altafaj also attempted to quash fears that Portugal could follow Greece. He said that the performance of Lisbon government's fiscal consolidation has been "satisfactory", and that economic reforms are working. Portugal has hit the targets set by the Troika [IMF, ECB, EU], but its economy is suffering – with the unemployment rate hitting 14% last week.

11.05am: The Bundesbank has predicted that the German economy will make a rapid return to growth this year, despite the eurozone debt crisis.

Germany's central bank said that the recent economic weakness (Germany shrank by 0.2% in the last quarter of 2011) was a short-lived issue. In its monthly report for February, it said:

The outlook for the German economy improved perceptibly towards the end of the reporting period, though risks relating to the sovereign debt crisis remain

The assumption underlying the Bundesbank's economic forecast in December of a fairly rapid resumption of growth looks more likely to materialise at the present juncture.

10.31am: Here's some City comment on the Eurogroup meeting today.

Lee McDarby, Investec Corporate Treasury:

The biggest fear of the market is nothing to do with the ability of the Greek government to honour the agreement or the size of the haircut private investors will be forced to take on their debt (even though both these issues will be discussed this afternoon), but whether an agreement will actually be passed.
The uncertainty of the outcome of any decisions taken today cannot be underestimated with the most extreme being measures taken to set the wheels in motion for an orderly default by Greece and consequently an orderly exit from the euro and return to the Drachma.

Jane Foley, Rabobank

There is plenty of optimism that Eurozone finance ministers will finally be able to rubber stamp Greece's second bail-out package at this afternoon's meeting in Brussels. There is less hope, however, that Greece will put in place all the austerity measures that have been asked of them suggesting that while there is a strong chance that Greece will avoid a messy default next month the problems that are facing the country will continue to play out potentially for years.
The key question for the EMU is thus to what extent have banks and other investors managed to protect themselves from further negative developments in Greece. Contagion risk is not as high as it what at the start of the Greek crisis but it is still a significant threat for EMU with Portugal, Ireland, Italy and Spain all still potentially vulnerable.

Elisabeth Afseth of Investec:

Opinion polls in Greece show low support for the two main parties, who are the only ones to have signed an agreement to stick with the terms of the bailout programme after the election. Given the uncertain political outlook, European leaders may feel uncomfortable with agreeing a second bailout, especially as large payments are needed upfront to facilitate the private sector debt exchange. Patience with Greece is running thin and euro area finance ministers will look to impose control measures to try to ensure closer adherence to the fiscal and economic reform programme. But these concerns will probably be outweighed by fear of the consequences of no agreement today. Pushing Greece to a disorderly default and likely exit from the euro would set a dangerous precedent. Without clear ring-fencing of the remaining countries (and we doubt euro leaders have been quietly working out a bullet proof plan to contain contagion should Greece leave) it would be very risky to delay this issue any further, though we are getting used to broken deadlines.

10.02am: Just in – the Greek finance minister, Evangelos Venizelos, has declared that Greece has met all the conditions set by its lenders, and its people have made the necessary sacrifices.

In a statement issued ahead of this afternoon's meeting (viewable in Greek here) , Venizelos said:

We expect today to close a long period of uncertainty that has not been to the benefit of either the Greek economy or the euro area.

Venizelos, who has railed against those calling for Greece to default, said Europe must send a "clear message" today that the decision will be taken on the basis of rules that are "stable" and do not keep changing.

He added, though, that negotiations will continue until the last minute.

9.58am: The smell of teargas hung over the streets of central Athens last night as protesters gathered for an anti-austerity rally outside the Greek parliament.

This photo shows one demonstrator being detained by riot police.

9.43am: In Greece, the talk is that this could be a historic day in the country's history, despite the political infighting and public anger over the terms of its financial rescue package.

News anchor Nikos Evangelatos confidently told the nation that:

By this time tomorrow our debt should have been reduced by €100bn and we will have €130bn in aid, which ultimately is more debt but debt that we will pay back on more favourable terms.

Helena Smith in Athens has more:


The next 10 days will be "the days that changed Greece", pundits say, as the country races to enact reforms it has delayed implementing over the past two years in time for the first tranche of aid in March when Athens must redeem €14.5bn euro in debt.

Labour laws will change, public sector jobs for life will go, civil servants will be axed - in what will amount to a drastic overhaul of the inefficient modern Greek state.

"It sounds barbaric, almost impossible but it has to be done," an economics analyst told a local radio station. "Everything about the way our country works is about to change because the troika [the EU, ECB and IMF] has made clear that without such reforms there can be no money and without the money bankruptcy lies ahead."

9.21am: Greek flags were spotted on the streets of Madrid last weekend as part of the protests against Spain's austerity programme.

The "We're All Greek Now!" movement has called on people all over the world to show solidarity with Greece's population.

This photo, published by Twitter user @soniabouzas, shows two Greek flags on display in Madrid on Sunday.

9.02am: News in from Athens, where Greek media is reporting that Lucas Papademos is "working feverishly" to avoid any let-up in the loan deal.

Our correspondent Helena Smith explains:


With so much hanging on the agreement – future aid but also the country's fate as a eurozone member – the technocrat prime minister will hold back-to-back meetings ahead of euro group finance ministers assembling at 3:30PM CET (2.30PM GMT) to make their crucial decision.

"He will be holding meetings all day so there is no short-circuit," said Flash news.

Among these will be a meeting with representatives of the Institute of International Finance (IIF) about the long-delayed debt restructuring also on the cards for Greece. Greek officials say the private sector bondswap, which will write off around €100bn from Greece's €350bn debt pile, still awaits "finishing touches".

Despite Papademos rushing through emergency legislation on pension and pay cuts ahead of the meeting – parliament is expected to vote on the bill this week – not everyone is convinced that Greece's febrile political atmosphere will allow for spending cuts and structural reforms to be enacted. The former vice president of the European Central Bank will have to muster all of his expertise, persuasion and charm to convince hardier eurozone nations that this is not the case.

8.51am: The idea that Greece's second bailout should be paid into an 'escrow' account is gaining ground this morning.

An Escrow account would means that although Greece would have been granted its funds, its access would be restricted. Miss its targets and the funding stream could run dry.

Austrian finance minister Maria Fekter has said that the eurogroup's working group has been looking at escrow options in recent days.

That is being prepared on the technical level. The finance ministers will discuss this intensely at their meeting. I welcome such a special account.

French finance minister Francois Baroin also said this morning that he supported the idea of paying Greece's funds into an escrow account.

8.42am: French finance minister Francois Baroin says he will urge his eurozone counterparts to approve Greece's bailout package today.

Baroin told Europe 1 Radio this morning that:

All the elements are in place...both with the bankers, private sector creditors, and public sector creditors, the states and central banks....

That is what I will plead for as minister of finance today. I think we should take account of everything that has been done in recent weeks by the Greek government, and by political parties both on the left and the right.

Baroin (who famously described the UK's economic situation as "very worrying" last December) added that Greece could find itself in "bankruptcy" unless the deal is agreed in time for its €14.5bn debt repayment on 20 March.

8.33am: European stock markets have opened strongly this morning, on optimism that Greece's bailout will be agreed.

The FTSE 100 is 34 points higher at 5938 – its highest level since last July.
The French CAC is also up 0.6%, with Germany's DAX a little higher.

Michael Hewson, senior market analyst at CMC Markets, said traders are hopeful that a deal will come today, having driven shares higher over the last couple of weeks.

The markets certainly think that the odds are good, given the way they have front run a possible outcome over the last few days as the euro and equity markets have continued to rise.


Shares have been gaining ground for most of this year – the Footsie is 6.5% higher since 2012 began.

8.23am: There's plenty of coverage of the Greek crisis in today's Guardian:

David Gow reports that Lucas Papademos's unexpected flight to Brussels came after Germany voiced new fears about Greece:

Wolfgang Schäuble, the German finance minister and focus of mounting Greek fury at austerity measures imposed on Greece, accused Athens of rejecting offers of help in rebuilding its shattered economy and of dragging its feet on reforms.

The German economic ministry, according to the paper Welt am Sonntag, has drawn up a "sobering" report on what it sees as Greece's failure to make implementing reforms its priority, and has called for greater co-operation with Brussels as a pre-condition for approving the bailout.

Papademos is to be on hand to assure sceptics that his government can deliver on these planned reforms and iron out final technical details of the package.

From Athens, Helena Smith explained that the Greece cabinet has agreed new spending cuts:

The legislation is expected to include wage and pension cuts, and a supplement to the 2012 budget which already foresees €3.2bn in savings.

"It has been impossible not to cut pensions," said Papademos, a former vice president of the European Central Bank, appointed to the post last November with the sole purpose of averting a potentially disastrous default by the eurozone member.

Ministers also worked to sign off reforms ahead of their submission to parliament this week.

Larry Elliott argues that the conflict over Greece's bailout has Tolkienian overtones:

There's a scene in The Lord of the Rings where the wizard Gandalf confronts the Balrog, a hellish monster, on a narrow bridge in the Mines of Moria. The battle ends with Gandalf smiting the bridge with his staff, sending the Balrog plunging into a fathomless abyss.

There's a twist to the tail, however. As the monster falls, one last swish of its whip curls round Gandalf's ankle and drags him down into the pit as well. Views may differ, in the context of the eurozone debt crisis, whether Greece is Gandalf or the Balrog, but one thing is for certain; the risks of mutually assured destruction are high.

And Julia Kollewe explains how Greece's debt swap with its private creditors will work.

8.10am: The meeting of eurogroup finance ministers in Brussels is the main event on the agenda today. We'll also learn how much the European Central Bank spent buying up government debt last week.

• Eurogroup meeting begins: 2:30pm GMT / 3.30pm CET
• ECB weekly bond-buying data: 2:30pm GMT / 3.30pm CET

France, the Netherlands and the UK are all selling government debt this morning.....

8.05am: Good morning, and welcome to our rolling coverage of the eurozone debt crisis.

It's decision time for Greece. Later today, eurozone finance ministers meeting in Brussels must decide whether the country has done enough to receive its second bailout package. The Greek prime minister Lucas Papademos has flown to Belgium to press the flesh and assure the Eurogroup that Greece will deliver on its pledges.

Over the weekend, Papademos's cabinet approved further spending cuts demanded by his lenders. But there are rumours of discord within Europe, and concern that the €130bn package is no longer big enough to put Greece on a path to a sustainable future.

We'll be tracking all the action in Brussels, as well as bringing you reaction and analysis from across Europe.

We'll also keep an eye on Spain, where hundreds of thousands of people took to the streets on Sunday to demonstrate against austerity, spending cuts and labour reforms.

Powered by Guardian.co.ukThis article was written by Graeme Wearden, for guardian.co.uk on Tuesday 21st February 2012 06.10 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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