Economy: Eurozone approves Greek bailout; aviation industry protests EU carbon tax

Updated On: Mar 13, 2012

Eurozone officials have backed Greece's second bailout of €130 billion, pending a contribution from the IMF. This follows a debt deal reached by Greece with private creditors over the weekend. Meanwhile, the airline industry has requested for a delay on the EU carbon levy.

Eurozone Approves Bailout

Finance ministers from the 17-strong currency bloc met in Brussels yesterday to approve Greece's latest bailout. The meeting followed Greece swapping most of its privately-held bonds with new ones worth less than half their original value.

The chairman of the Eurozone group of Finance Ministers, Jean-Claude Juncker, who is also the Prime Minister of Luxembourg, said the group welcomes the IMF's "proposal to recommend a €28 billion [contribution] to the Greek facility. We look forward to the discussion and the decision by the IMF board on March 15".

There are still several steps needed before Greece gets hold of the bailout money. There will be another Eurozone meeting on Wednesday, and the IMF still has to give final word that they are contributing to the programme.

Eurozone officials also discussed Spain's financial status at Monday's meeting. Finance Ministers agreed to allow Spain a bigger 2012 public deficit to 5.3 percent of GDP, higher than the original target but below the 5.8 percent Spain originally wanted.

Report: Eurozone group backs second Greek bailout[BBC, 12 March 2012]

Debt Swap

On Monday, Greece implemented the biggest debt writedown in history, following a deal reached last weekend. Greece swapping the bulk of its privately held bonds with new ones worth less than half their original value. The deal with banks and other lenders is the largest restructuring of government debt in history.

Under the debt swap, banks and other financial institutions have agreed to exchange their existing Greek government debt for new bonds, which are worth much less and pay a lower rate of interest.

Investors agreed to restructure €172 billion worth of Greek bonds, which represents 85.5% of the total €206 billion held by the private sector. The private investors will see the values of their bonds slashed 74%, which will cut Greece’s overall borrowing burden by a third to 120 per cent of its GDP by 2020.

83.5% of private investors holding its government debt agreed to the bond swap and will accept softer repayment terms for Greece. Those who refused to sign up will be forced into the deal as well, which may trigger payouts of credit default swaps.

The swap was one of the conditions set by the EU and the International Monetary Fund (IMF) for Greece to receive its new €130 billion rescue package.

However, according to Moody’s definitions, “this exchange represents a ‘distressed exchange’, and therefore a debt default.” Other rating agencies like Fitch and Standard & Poor’s have also declared Greece in default. While the restructuration of Greece’s debt will cut Greece’s annual interest burden and postpone its problems, analysts believe that the deal will impose billions in losses on Greek banks, which will need to be recapitalized, and on Greek pension funds, which will need to be replenished.

Report: Greece defaults, and tries to move on [Wall Street Journal, 10 March 2012]

Report: Greece secures biggest debt deal in history, staving off bankruptcy, economic chaos in Europe [Washington Post, 9 March 2012]

Report: Greece: Historic restructuring paves way for bailout [CNN, 9 March 2012]

Report: IMF chief proposes 28 billion euro Greek loan for 4 years [Reuters, 9 March 2012]

Aviation Industry Up In Arms Over EU Carbon Tax

Seven leading European leading aviation companies, including Airbus, British Airways and Virgin Atlantic, have written to political leaders, complaining that the recent EU carbon tax threatens jobs and trade. The carbon tax will levy a charge on flights within the EU airspace based on carbon emissions. In a statement, Airbus CEO Thomas Enders was quoted as saying that “the measure is threatening more than 1000 jobs (at Airbus) and another thousand through the supply chain”.

Both the US and China have opposed the tax, and the European airlines believe that the EU emissions trading scheme for carbon dioxide may create an “intolerable” threat to the aviation industry by opening up the possibility of trade battles with US, China and Russia. For instance, Airbus said that three Chinese airlines refused to finalize preliminary agreements to buy A330s because of Beijing’s unease over the new carbon tax scheme. Secretary of State Hilary Clinton also wrote to the commission last December, saying that the US “will be compelled to take appropriate action” if the EU scheme is not shelved.

In their letters, the companies called for proposals to be put on hold until a global plan for carbon emissions has been agree upon. A spokesperson from British Airways said that imposing “a scheme on flights outside of Europe risks retaliatory actions against EU airlines and EU trade at a time when the European economy is under severe pressure”.

Report: Delay EU carbon levy, says air industry [CNN, 12 March 2012]

Report: Aviation plea to leaders over EU emissions tax [BBC, 12 March 2012]

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