Highlights: Euro zone ministers, officials after Greek deal

BRUSSELS (Reuters) – Euro zone finance ministers and representatives of the private sector finalized a deal on Tuesday that will provide 130 billion euros of new financing to Greece and help to cut Athens‘ debt-to-GDP ratio to just over 120 percent by 2020.
The deal relies on private sector holders of Greek government bonds accepting a greater than 53 percent loss on the nominal value of their holdings, which will help reduce Greece’s debt by around 100 billion euros.
Following are comments by ministers and officials after the talks, which lasted more than 13 hours.
IMF MANAGING DIRECTOR CHRISTINE LAGARDE
“I will take this matter further to the board of the IMF in the second week of March, obviously subject to prior action that Greece has committed to deliver before the end of February being actually delivered.”
EU COMMISSIONER FOR ECONOMIC AND MONETARY AFFAIRS OLLI REHN ON COMBINING EFSF AND ESM POWER
“It should be possible to combine the firepower of the ESM and the remaining amount of the EFSF in order to have a substantially stronger financial firewall than we have at the moment. If you calculate you can see the ESM is 500 billion euro and the EFSF remainder is 250 billion euro, that is a good starting point to reinforce the IMF resources.
“I expect that we can reach our decision in March so that we can come to a conclusion on the reinforcement of the IMF resources in the course of this spring.”
EUROGROUP PRESIDENT JEAN-CLAUDE JUNCKER
“After a meeting of at least 13 hours, we have reached a far reaching agreement on Greece’s new program and private sector involvement that would lead to a significant debt reduction for Greece and pave the way towards an unprecedented amount of new official financing being provided by the EFSF to secure Greece’s future in the euro area.
“The debt to GDP ratio is expected to reach 120.5 percent by 2020 and program financing is estimated to amount to 130 billion until 2014.
“Greece will launch bond exchange offer in coming days.
“Given the balanced agreement reached with the creditor group led by the IIF and the fact that the package delivers debt sustainability for Greece we expect a high participation rate.”
ON PRIVATE SECTOR ROLE
“In order to show our good faith to the private sector the official sector will be making an important contribution.
“Creditors will implement a further lowering of lending margins of bilateral loans to Greece to 150 bps over the entire period of loans compared to the current margin of 200 bps over the first three years and 300 bps thereafter.
“This will bring the debt-to-GDP ratio down by 2.8 percent by 2020.
ON NATIONAL CENTRAL BANKS’ ROLE
“Governments of member states where central banks currently hold Greek bonds in their investment portfolios will commit to pass on to Greece an amount equal to any future income.
“This will lower financing needs by 1.8 billion euros.”
ON MONITORING OF ATHENS
“The Commission will reinforce the task force for Greece.
“The troika will also substantially reinforce its presence in Athens in order to counteract any slippage in Athens.
“In the meantime a mechanism will be put in place to better trace and monitor funds put in place to service Greece’s debt,” he said, referring to the setting up of an escrow-style account.
GERMAN FINANCE MINISTER WOLFGANG SCHAEUBLE
“The new program for Greece will be 100 bln euros plus 30 bln for the swap deal as agreed. To reach this, given the fresh numbers since the decision of the summit, the private sector had to move a bit further in negotiations. We agreed a haircut of 53.5 percent and the coupon for the new bonds will start at about 2 percent, will rise with time from 3 to 4.3 percent after 2020. In this way we will reach the reduction in debt.
“It’s a result that can be justified and that creates the preconditions to get Greece onto a sustainable return to economic health if the swap deal with private creditors is successful. We didn’t make it easy on ourselves. We insisted that the parameters of debt sustainability of 120 pct of GDP will be maintained just like the 130 billion as an upper limit for the second Greek program.
“All of that now depends on the reaction from the private sector and besides, it’s all conditional on Greece fulfilling the prior actions. Greece has agreed a number of measures but there are others… that it has to get onto the way legally by the end of the month. We also agreed that we as the eurogroup will check this immediately at the start of March on the basis of the troika report.
“The Commission has said it will significantly strengthen the use of staff for the monitoring, advice and support of Greek authorities in implementing these measures and we as member states have also said we’ d provide staff if wanted and requested.
ON IMF
“The IMF has promised it will take part in the new program, but the decision is not a foregone conclusion on the IMF board, so it’s not helpful for us in the eurogroup to talk about it. Madame Lagarde will make the proposal to the IMF board and it will agree. We have voiced our expectations but we also know that we have to accept that each member in the IMF board has its own responsibility.”
(Reporting Claire Davenport and Annika Breidthardt)
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Quid Pro Quo: IMF Cash For Europe In Exchange for Iran Oil Ban?

By Ian Talley

Europe may have just traded a U.S.-pushed Iranian oil embargo in exchange for Washington’s support of International Monetary Fund bailout loans to Italy and Spain, if one economist’s speculation is right.
Jacob Kirkegaard, a fellow at the Peterson Institute for International Economics, speculates the timing Europe’s newly-proposed ban on Iranian oil imports is too fortuitous to be purely coincidental.
Greece, Spain and Italy–in that order–heavily depend on Iranian crude and have been the most resistant to an embargo. They are now no longer fighting a ban–Italy has stated it would support it in principle while the others have signaled they wouldn’t stand in the way. [The agreement in principle is subject to substantial negotiations on timing or exemptions for long-term deals.]
Each of those countries are also the current epicenters of Europe’s sovereign debt crisis. Athens is in the middle of negotiating an agreement with bondholders on a debt deal that will pave the way for a near doubling of emergency loans, including from the IMF. Italy has to roll over nearly $340 billion in debt this year, but the cost of borrowing has soared beyond levels economists say is sustainable. Rome late last year turned down an offer for an IMF loan, but many economists say Italy will need IMF credit to pull itself out of its financial mire. And Spain’s banks are facing a housing bubble that could very well mean Madrid must soon ask for IMF assistance.
Meanwhile, each time the possibility of new IMF loans to Italy or Spain has been raised among members of the Group of 20 nations, Washington has pushed back. U.S. Treasury officials have so far insisted that  Europe use its own resources to build a firewall against the contagion engulfing Italy and Spain. Any further lending to Europe from the IMF, the officials have said, would be purely supplementary.
Europe said it planned to lend EUR150 billion to EUR200 billion to the IMF as seed money for a bigger fund. Europe expects that cash to be matched by China, Japan and perhaps sovereign wealth funds such as that owned by oil-rich Saudi Arabia, which would ostensibly provide alternative crude supplies to Europe.
If that plan gains traction–and so far it hasn’t–it could create a new funding pool at the IMF worth roughly EUR500 billion.
Washington has largely been opposed to boosting IMF coffers for big European bailouts.
But rather than maintaining such opposition, Kirkegaard said he sees it as entirely rational horse-trading for U.S. Treasury Secretary Timothy Geithner to now give reluctant consent for the fund to help play savior in Europe in exchange for Europe supporting an oil embargo. [The U.S. is the only country with veto power on the IMF's executive board.]
The European Central Bank has already oiled the gears. The ECB has stepped up its liquidity provision to banks and bond buying for beleaguered euro zone members to levels that, if maintained through the year, top more than the EUR1 trillion Washington says is an effective firewall.
That will make it much easier for the U.S. to back IMF loans that give its lending members protected seniority while requiring the structural and fiscal reforms needed to return the euro zone back to health.
Spokesmen from the U.S. Treasury and International Monetary Fund weren’t immediately able to comment.
(Benoit Faucon in London contributed to this piece)

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