Crisis accord buys time for Greece by easing debt burden: Papandreou

Written by Reuters | Updated: Oct 29 2011, 07:30am hrs
Prime Minister George Papandreou urged Greeks to support his efforts to revamp the economy after euro-area leaders hammered out a new bailout package for the country and imposed deeper losses on bondholders.

The crisis gives us the opportunity and this agreement gives us time, Papandreou said on television late on Thursday. We negotiated and managed to erase a very important part of our debt. Tens of billions of euros have been lifted from the backs of the Greek people.

European Union leaders boosted their rescue funds capacity to 1 trillion euros ($1.4 trillion) and carved out the second aid package for Greece at a crisis-fighting summit in Brussels lasting into the early hours of Thursday. The 17-nation currency and stocks climbed while bond spreads narrowed on optimism Europe might contain turmoil threatening its economy.

If Greece had declared bankruptcy, it would have been a process that would have escalated, French President Nicolas Sarkozy said on Thursday. Greece can save itself, but it has to make efforts.

The reworked deal on Greece will cut the debt ratio to 120% of gross domestic product by 2020 from a forecast of about 170% for next year. The 130 billion euros in public funding plus the 50% writedown on Greek debt follows a fully taxpayer-funded package of 110 billion euros in May 2010. Papandreou needs support from his voters to push through measures to turn around an economy that is set to shrink 5.5% this year.

The new package will reduce debt by about 100 billion euros and the interest the country pays by as much as 5 billion euros a year, providing a firmer basis for Greece to put reforms in place and begin producing primary surpluses, finance minister Evangelos Venizelos said on Thursday.

Papandreou won approval for a new round of pension and wage cuts last week to secure the aid. He assured Greeks on Thursday that banks and pension funds would be protected.

We will need to work together on this path we have chosen, Papandreou said. Only we can fix Greece and no one else. We cant wait for magicians or a deus ex machina to do the work for us.