IMF Releases Loan to Greece - Analyst Blog
IMF today approved a 2.2 billion euro loan to Greece, as a part of a three-year IMF-EU bailout package to the country, which is on the verge of bankruptcy.
Greece has been at the center of the Eurozone debt crisis for months and even after a year of austerity measures, its debt has increased; its deficit could exceed 9% of GDP this year and many structural reforms are still pending.
The disbursement is a part of the 30 billion euro IMF loan agreed in May last year (20.3 billion paid out so far) and a part of a bigger 110 billion euro rescue package for the country.
Earlier today, France and Germany announced a comprehensive agreement on a new set of fiscal rules for the Eurozone, which is likely to be approved by the European Union summit in Brussels on Friday. The agreement calls for automatic sanctions for countries that run government deficits at greater than 3% of GDP, thus the kind of spending that drove Greece to its current situation would be impossible.
Another important feature in today's announcement was a commitment by Germany that private sector bondholders would not be asked to bear some of the losses in sovereign debt restructurings, as was done earlier this year in the case of Greece. The "haircut" on Greek debt had fueled speculations that the debts of other heavily indebted countries such as Italy and Spain might also not be honored, leading to a sharp increase in their bond yields.
Despite short-term market optimism about efforts to tackle debt crisis, the outcome is still very uncertain and a Greek and Portuguese exit from the single currency in 2012 is very possible.
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