Euro nightmare avoided as Greece receives second bailout

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by G.A.Ponsonby 

The nightmare scenario of Greece defaulting on its debt repayments may have been avoided after Eurozone leaders agreed a second bailout package of £96 billion (€109).

The bailout follows a similar rescue package agreed in May last year as the country continued to struggle with the aftermath of the world financial crisis.

The new package was announced after an emergency meeting of the 17 members of the Eurozone and includes contributions from the private institutions, something France and the European Central Bank were against, fearing it could jeopardise the European banking sector.

However Germany insisted that the private sector bear some of the brunt and the deal will now see private lenders contributing a total of €135bn euros over 30 years.  The unique package will see Greece enjoy easier repayment terms than would have otherwise been the case.

There are concerns though that if private sector involvement is deemed to have been compulsory then ratings agencies could still classify the move as a default.  This would have a knock-on effect on other highly indebted nations, particularly in Spain and Italy.

Most analysts though expect it to be classified as a “selective default” rating, leading to a more muted effect.  “If it’s a selective default, it is a restructuring, and shows you’re being pro-active about the mess that Greece is in,” said Brian Barry, fixed income analyst at Evolution Securities.

The situation in Greece was an “absolute nightmare” for European officials, according to the FT’s chief economics correspondent Martin Wolf.

Mr Wolf had earlier insisted the choice was an easy one given that it was “completely inconceivable” Greece could raise enough money to fund its debts.  Wolf warned of “massive contagion within the Eurozone” If no restructuring deal had been reached.

The UK was exposed to Greek debt to the tune of £14.6 billion whilst Germany and France had a total of £91.6 billion exposure between them.

There were real fears of a 2008 style financial crisis had Greece defaulted.  The Greek government has already implemented a series of savage public spending cutbacks that has led to demonstrations on the streets.