EU’s Rehn: Deal to cut Greek debt by 22%/GDP by 2020

Lower interest on euro zone loans to Greece and private bondholder involvement in the country's restructuring will cut its debt by 22% of GDP by 2020, Economic and Monetary Affairs Commissioner Olli Rehn said.
Rehn reiterated that the involvement of the private sector in the second financing package for Greece, agreed by euro zone leaders on July 21, was exceptional and would not be repeated in the cases of fellow bailout recipients Ireland or Portugal.
Euro zone leaders agreed to lower the interest on loans to Greece and extend their maturity to 15-30 years.
"A reduction of interest rates to about 4% should reduce cumulative interest payments by some 25 bln euros between 2011 and 2020," Rehn told a news conference.
"This implies a reduction in the debt ratio in 2020, without private sector involvement, of around 10% of GDP," he said.
Before the July 21 agreement, the Commission forecast that Greek debt to GDP ratio would rise from 142.8 in 2010 to 157.7% in 2011 and then to 166.1% in 2012.
Rehn said private sector involvement (PSI) in the financing package would bring the ratio down further by stretching the average maturity further, and substantially cut the amounts that Greece would have to raise in the markets by the end of the programme in 2014.
"PSI and the accompanying debt buy-back entail a further estimated net debt reduction by some 26 bln euros or 12% of GDP by 2020," Rehn said.
To secure private sector participation, Greece will offer credit enhancement for new bonds that investors will be able to get in exchange for current Greek bonds either immediately or at maturity.
Euro zone leaders allotted 35 bln euros for such credit enhancement for Greece and another 20 bln euros for a Greek bond buyback.
Costs relating to PSI included the recapitalisation of Greek banks (20 bln euros) and credit enhancements (35 bln euros), in the form of AAA-rated bonds paid on an escrow account, for the new government bonds being exchanged for existing bonds maturing during the period 2011-20, Rehn said.