Eurozone agrees details of loan to Greece

Finance ministers of the eurozone today (11 April) agreed the details of how an emergency loan of up to €45 billion might be provided to Greece.



Seeking to calm the speculation against Greek debt on the financial markets in recent days, after a video-conference between the finance ministers this afternoon, Jean-Claude Juncker, the chairman of the Eurogroup, and Olli Rehn, the European commissioner for economic and monetary affairs, announced that agreement had been reached.

Juncker said: “This is a step of clarification the markets are waiting for.”



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Rehn said that the eurozone governments were prepared to provide Greece with up to €30bn in financial support in the first year in bilateral loans. He confirmed reports that the eurozone countries would provide two-thirds of the total support with another third coming from the International Monetary Fund (IMF). That would mean a total of €45bn.

Officials from the European Commission will meet counterparts from the IMF and the European Central Bank (ECB) tomorrow (12 April) to work out details of how the EU and the IMF will co-operate in administering the rescue package, having received a mandate from the eurozone ministers on the price, the time-frame and the conditionality to be applied.


One of the main points of uncertainty for the markets has been at what rate the loans might be provided. The eurozone government leaders, in their statement of 25 March, which approved in principle the idea of combining loans from the eurozone countries and the IMF, said that the loans would be provided at “non-concessional” (ie, non-subsidised) rates. But the lack of details was the cause of turbulence on the markets, with France and Germany at odds on how the interest rates would be calculated.

Interest rates

Rehn said that the eurozone governments had agreed to charge Greece arate of interest derived from pricing formula used by the IMF “albeit with some adjustments”. He admitted that with these adjustments the rate charged would be “somewhat higher” than that charged by the IMF.

The commissioner cited, as an example, that with these conditions, the rate for a three-year fixed-rate loan granted on 5 April would have been around 5%.

Variable-rate loans will be based on the three-month Euribor – the reference rate used for lending between commercial banks. Fixed-rate loans will be based upon the rates corresponding to Euribor swap rates. A charge of 300 basis points will be applied. A further 100 basis points will be charged for amounts outstanding for more than three years. In line with IMF practice, a one-off service fee of a maximum of 50 basis points will be charged to cover operational costs.

Pooled loans

All eurozone countries would charge Greece the same rate and the loans would be pooled and dispersed by the European Commission. Individual countries’ contributions would be calculated on the same basis as their contributions to the reserves of the ECB.

That would mean that some countries that are themselves in budgetary difficulties, such as Ireland and Spain, they would be obliged to lend to Greece.

Rehn said that it had been tentatively agreed that when it came to assessing the compliance of such countries with the EU’s stability and growth pact and the need for excessive deficit procedures, then the loans to Greece would be taken into account. Juncker said that no country would be expected to lend to Greece at a “loss” (ie, at a rate lower than they pay on the financial markets).

Decisions on what loans might be provided after 2010 had not yet been made.

‘Signal to market’

No request has so far been received from the government of Greece to activate the emergency loan, but Juncker and Rehn said it was important to send a signal to the markets that the EU and IMF were ready to start providing financial support to Greece at short notice. If and when such a loan was requested, it would still have to be unanimously approved by the eurozone governments.



“I said very clearly that it is…a matter of non-concessional loans and certainly no subsidy,” Rehn said.



The Greek government has insisted that the country is not at risk of default, but investors have become concerned that the country will struggle to turnover its debts. A €8bn Greek bond will mature this month. Another for €8.5bn will mature in May. Greek is expected to go to markets on Tuesday (13 April) and again on 20 April to raise capital.


José Manuel Barroso, the president of the European Commission, welcomed the agreement, which he said covered “all the remaining details of the co-ordinated European response to provide financial support to Greece if needed”.