14.45 And here's our Head of Business, Damian Reece's view. His verdict? This is no permanent rescue for Greece:
14.40 I've just asked our international business editor Ambrose Evans-Pritchard for his verdict on Greece's new debt deal. He's standing in front of me with both thumbs down. "Revolution," he adds.
More from Mr Evans-Pritchard later.
14.29 Mr Rajoy says that labour reform is crucial if Spain is to move forward. Unemployment in Spain currently stands at 22.83pc, with youth employment above 50pc. Mr Rajoy says Spain's labour laws date back 30 years, and change must happen because "the world is no longer the way it was".
14.22 On the eurozone, Mr Cameron says it's now important to have a credible "firewall to prevent contagion in the eurozone."
14.20 Mr Rajoy echoes Mr Cameron's sentiment. He says it's important to promote economic growth, while remembering that austerity and fiscal discipline are also crucial to get Spain's economy back on track.
14.15 The press conference begins. Three issues were on the table at Downing Street, says Mr Cameron:
• The bilateral relationship between the countries. Mr Cameron says that the fact that both are on the "centre right" means they will be able to build on their relationship.
• The situation in Europe – and the need for growth. Both countries signed a letter calling for growth-friendly policies by "completing" the single market in several areas.
• Global issues, including the situations in Iran and Syria
14.09 UK Prime Minister David Cameron is due to hold a joint press confrence with Spain's PM Mariano Rajoy at Downing St shortly.
13.48 Here's Nobel Prize-winning economist Paul Krugman's take on the latest debt deal. In a blog simply entitled Greece, he writes:
What can I say? As Felix Salmon says, this really isn’t credible. The problem with all previous rounds here has been that austerity policies depress the economy to such an extent that it wipes out most of the topline fiscal gains: revenue fall, so does GDP, so the projected debt/GDP ratio gets, if anything, worse.
Now we have another round of austerity — which is assumed not to do too much damage to growth. The triumph of hope over experience [...]
What’s happening is that nobody is prepared to take the plunge into either of the paths that might eventually lead out of this: sustained aid (not loans) to Greece, or departure from the euro, leading eventually to higher competitiveness and faster growth. Both options would be politically catastrophic, which means that they can’t be taken until there is literally no alternative.
13.39 Jose Manuel Barroso, President of the European Commission, told reporters that last night's deal "closes the door to an uncontrolled default that would be chaos for Greece and Greek people."
13.12 The IMF could contribute €23bn to the new Greek rescue package, according to German Finance Minister Wolfgang Schaeuble. He told reporters:
The IMF will participate in a new programme, It has proposed a sum of €13bn plus the €10bn that was not used in the first programme. But the final contribution will be made by the IMF board in its next meeting.
The IMF board will meet in mid-March.
13.03 David Blair, our chief foreign correspondent, has filed this from Syntagma square in Athens, where so far, the reaction has been muted:
Spend any time in Syntagma square in the centre of Athens and you will eventually see a protest. But not today it seems. Yesterday, the anarchists marched through the square, overlooked by the elegant parliament building. Today, after the conclusion of the second Greek bailout in return for eye-watering austerity measures, there are no demonstrations to be seen. Or at least not now.
This is not as surprising as it might appear. After months of pressure, ordinary Greeks have grown accustomed to emergency summits and late-night bailout negotiations. Many have stopped following the news. "For me, it's like a psychological war," said one 25-year old who is, inevitably, unemployed. "One day, it's 'we'll give you the money'. The next meeting, it's 'no we won't.' This is all blackmail."
The absence of trust for domestic politicians extends with a vengeance to those from Europe. Another Greek says that Germany still has "Nazi mentality". So Greece may have got it's bailout, but in this poisonous atmosphere of distrust and resignation, can the swingeing terms possibly stick?
People walk in central Athens on Tuesday (Photo: AFP/Getty)
12.50 A journalist asks if he has a warning message for Greece if it doesn't delivers on its promises. Mr Rehn replies:
I trust that the leaders of the Greek coalition and main parties will implement the programme and the authorities will co-operate because even though it is by no means an easy programme, it is the least difficult way for the Greek people, and it’s the way Greece can return to growth and employment.
12.45 Greece is a "specific and unique case", he says, which "lived beyond its means in a systematic manner". Cutting Greek wages will restore the country's cost competitiveness.
He adds that he doesn't know how many debt inspectors will be placed in Greece.
12.38 Speaking in his famous staccato voice, Mr Rehn says that tackling the debt crisis will help the euro area return to economic growth more quickly.
We are now experiencing a mild recession which can be short-lived on the condition that our policy response is decisive and determined [...] Resolving this Greek problem in a credible manner is a necessary condition for overcoming the crisis and returning to recovery.
Olli Rehn and German Finance State Secretary Jorg Asmussen talk prior an ECOFIN meeting on Tuesday (Photo: AFP/Getty)
12.20 Monetary Affairs Commissioner Olli Rehn, who has also been up all night, is holding another press conference in Brussels following the Ecofin meeting that George Osborne attended this morning.
12.11 Brussels correspondent Bruno Waterfield, still going strong after last night's marathon meeting, highlights this worthy piece of information among the several press releases sent out by the EU Council this morning. Diplomats have described this to him as "in real terms measures with as many teeth as the fiscal compact treaty."
The Council today set out its position with a view to negotiations with the European Parliament on two draft regulations aimed at further strengthening economic governance in the euro area:
• a regulation for enhanced monitoring and assessment of draft budgetary plans of euro area member states, especially those subject to an excessive deficit procedure
• a regulation on enhanced surveillance of euro area member states that are experiencing severe financial disturbance or request financial assistance.
Big Brother is watching...
12.07 Meanwhile, a quieter day in Athens this afternoon, though the protests continue:
Blind people march in central Athens against salaries and pensions cuts and lay-offs on Tuesday (Photo: AFP)
11.57 But at this rate, his signature won't be worth the paper it's written on. According to the latest polls, support for the two parties backing Mr Papademos’ coalition government has fallen to an all-time low.
Support for ND and PASOK fell by 2 percentage points to 19.4pc and 13.1pc respectively, compared with December. Anti-bailout parties - the Left Coalition and the Democratic Left - are gaining support. They didn't sign letters.
However, Mr Samaras is still favourite to win the election, though Greek paper Ekathimerini says that on current levels of support, ND would fail to win a majority and would depend on PASOK to rule.
11.50 Antonis Samaras, leader of Greece's New Democracy (ND) party, and favourite to succeed Lucas Papademos after April's elections, has said that debt-reduction targets can only be met through economic growth. He told reporters in Cyprus:
Without the rebound and growth of the economy [...] not even the immediate fiscal targets can be met, nor can the debt become sustainable in the long-term.
Mr Samaras was forced to write a letter to ECB president Mario Draghi this month, promising to continue implementing the austerity promises of his predecessor if he is elected.
Antonis Samaras, the leader of Greece's co-ruling conservative New Democracy party
11.33 Two short-term bond sales in Europe this morning.
First up, Spain.
The country sold €2.5bn in three and six-month bonds at interest rates of 0.396pc and 0.779pc respectively, compared with 1.285pc and 1.874pc at the last auction.
Demand was very strong, with ten bidders for every bond on the six month issue.
Next, the European Financial Stability Facility (EFSF), aka the eurozone's temporary bail-out fund.
It sold nearly €2bn of six month bills at an average yield of 0.1908pc, lower than the 0.2664pc seen in January.
Taking the plunge. Investors ploughed their money into a Spanish bond sale this morning (Photo: AP)
11.25 So, we've heard what the politicians and commentators think of the latest Greek debt deal. What about you? Vote in our poll:
11.05 Here's Vicky Redwood, chief UK economist at Capital Economics, on the UK borrowing figures:
It now looks like borrowing in 2011/12 as a whole could come in as low as £117bn, compared to the OBR’s forecast of £127bn. Together with the recent pick-up in the economic data, this might help the Chancellor to claim at next month’s Budget that his Plan A is still working. We still think that borrowing will be much harder to pull down further ahead once economic growth slows – potentially leading to the loss of the UK’s AAA rating. But for now, the Chancellor is likely to stick with his austerity plans.
UK Chancellor George Osborne (Photo: AFP/Getty)
10.56 Some good news out of Britain this morning. Britain's public debt pile dipped below the £1 trillion mark in January, after figures showed that the Government paid off £7.8bn of the country’s debts last month, more than the £6.3bn expected.
Philip Aldrick says that this money could be used to fund a tax giveaway of more than £7bn in next month’s Budget and still meet his deficit reduction targets:
Official figures from the Office for National Statistics showed that the Government paid off £7.8bn of the country’s debts last month, better than both the £6.3bn expected and £5.2bn in January last year. The surplus pulled the national debts back below £1 trillion, at £989bn, though they are expected to rise back past the benchmark in the next couple of months.
The strength of tax receipts, which hit a record monthly high of £61bn, has put the Chancellor on course to undershoot significantly his official deficit target this year, potentially providing him a multi-billion pound to either cut taxes or raise spending try to stimulate growth.
The Office for Budget Responsibility has forecast that the Government will have had to borrow £127bn for the year to April – a key metric on which the Chancellor has based his current austerity plan.
10.45 Back to Britain. Our video team have captured George Osborne telling reporters in Brussels this morning that a eurozone deal is "good for the British economy".
10.37 While analysts at Royal Bank of Scotland say in a note today that if credit default swaps are triggered, it could create another "Lehman wave" of smaller banks going bust. Here's more:
Preferential treatment of the official sector [such as the ECB] vs. private bondholders creates a notion of implicit subordination; a negative for other European government bonds (EGBs). We still expect a CDS trigger when the bond swap completes on the 11th of March, and there remains a lurking risk that if some of the CDS writers were to default (especially the small banks), it could create another 'Lehman wave'.
10.18 Raoul Ruparel, head of economic research at think-tank Open Europe, already sees a problem with the "voluntary" nature of the deal:
Despite last night’s agreement there are still huge unanswered questions in regards to the second Greek bailout. It seems unlikely that Greece will be able to enact this list of ‘prior actions’ before the end of the month given the huge political and social unrest seen in Athens recently. Furthermore, the expectation that 95% of private bondholders will agree to an even larger write down than expected seems wildly optimistic. Meanwhile, the prediction that Greek debt will become sustainable again rests on the assumption that Greece will hit impossible austerity targets and yet still return to growth next year.
Even if everything goes to plan, this deal can at best buy Greece and the eurozone some time. Unfortunately, it is not clear whether eurozone leaders have a viable plan to take advantage of this breathing space.
10.00 This poses the obvious question: is this a default? Well, it depends who you ask. The International Swaps and Derivatives Association (ISDA), which officially determines whether a country has defaulted (i.e credit default swaps triggered, and insurance paid out), is yet to update its Q&A on Greek sovereign debt. Back in January, it said this:
The determination of whether any action constitutes a credit event under CDS documentation will be made by ISDA’s EMEA Determinations Committee on the basis of the specific facts and if a market participant requests a decision from the DC. Generally, however, the inclusion of a CAC would not, in and of itself, be expected to trigger a Credit Event. On the other hand, the use of such a clause to effect a reduction in coupon or principal or one of the other events set out in the definition of the Restructuring Credit Event could trigger if the other requirements of the Restructuring Credit Event were met (for example decline in creditworthiness), as its effect would be to bind all holders of the relevant debt.
09.55 "Voluntary" is the operative word here.
Greece's finance ministry announced this morning that said it would pass legislation that would allow it to enforce losses on bondholders who will not take part in a voluntary bond swap plan via "collective action clauses" (CACs). In a statement, it said:
The Greek government will shortly submit to the Greek parliament a draft bill which, if passed, will introduce a collective action clause into eligible Greek-law governed bonds of the Hellenic Republic as determined by the Council of Ministers of the Hellenic Republic.
If passed, this law will be available to be used in the implementation of the PSI (private sector involvement) transaction if necessary to achieve participation at the levels anticipated by the 26 October 2011 Euro summit statement.
09.38 Charles Dallara, managing director of the IIF, says he is confident of strong participation in the voluntary debt deal.
09.33 After a few problems with the sound system, the IIF press conference is underway. Jean Lemierre, one of the bank negotiators, has said that the real loss for bondholders on their Greek holdings will be more than 70pc. JP Morgan has said this morning that it will be 75pc, on an agreed haircut of 53.5pc.
09.10 So happens next? A lot of dotting 'i's and crossing 't's.
There is a "technical briefing" on Greece's second bail-out package shortly in Brussels. According to the press release, it will be attended by Matthias Mors, Commission representative within Troika mission, and "expert from EFSF".
There is also an IIF (which represents the private bondholders taking the losses on Greek debt) press conference happening now. We'll bring you breaking lines from both.
08.58 UK Chancellor George Osborne told reporters in Brussels this morning that the deal would allow Europe to "move on".
I think the important thing about this deal is that they have tried to get Greece into a reasonable place vis-a-vis its debt sustainability [...] That's been the crucial missing ingredient. They have not, in the past, come up with a sustainable position for Greece. I think they have made real progress now towards giving a sustainable debt position for Greece.
Of course the Greek people, the Greek political system has to deliver really difficult decisions now but I don't think Greece has any other option.
Hopefully we can all move on now and get the European economy growing.
EU finance ministers, including George Osborne (third from left), gather for a meeting on Tuesday. The Ecofin meeting traditionally follows the Eurogroup meeting (Photo: AP)
08.55 Back to the Greek deal, where BBC business editor Robert Peston offers his thoughts (he has three):
First, that if private sector lenders sign up to what their negotiators have agreed with the Greek government, it will be momentous: a reduction of 53% or 107bn euros ($142bn; £90bn) in the face value of what the Greek government has borrowed. [...]
Second, I don't know whether it matters that eurozone central banks and governments are making a different sacrifice in respect of their holdings of Greek government bonds than the sacrifice being made by commercial banks and other private sector lenders. [...]
Finally, and to state the bloom' [sic] obvious, what we had overnight is an agreement in principle, not a final definitive rescue of Greece.
Before we crack open the vintage Ouzo, let's just see how it goes down with the relevant private-sector lenders, politicians in the only creditor country that really matters - Germany - and Greek citizens, who are being asked to sign up for years of declining living standards with no promise about when and whether the better times may return.
A shoe shiner tries to keep warm next to an hourglass graffiti in Athens on Monday (Photo: AP)
08.37 Stock markets are slightly down this morning. The FTSE 100 in London is currently down 0.3pc at 5,927.21, while the CAC 40 in Paris is trading 0.31pc lower at 3,461.87 and Frankfurt's DAX 30 is down 0.25pc at 6,930.63.
As City editor Richard Fletcher says in this morning's City briefing:
Buy on the rumour sell on the fact - goes the old stock market adage.
08.29 Earlier this morning, Greek economist Yanis Varoufakis told BBC News that leaders were still in "big denial over Greece". He insisted:
Greece has now officially defaulted. Europe has managed to find a euphemism for it – it’s calling it a second bail-out.
He stressed the importance of interest rates matching the country's rate of growth, adding:
...if those numbers are out of sync, then you have a disaster on your hands.
Mr Varoufakis appeared on Channel 4 News last night arguing for an alternative plan of action. Read more on his blog.
08.20 Former Chancellor Alistair Darling is speaking on Radio 4's Today programme:
He says that last night's deal was necessary as "both sides are over a barrel [...] Greece needs the money, the eurozone needed it because the last thing it wants is collapse."
However, he adds that even if Greece "does everything is asked of it," by 2020, its debt to GDP ratio will still be 120pc, and he asks if this is a "realistic" level to get it out of the mess it is in.
Greece will be back at the table in some point – and other countries could be back as well [...] Europe [has a ] dark cloud hanging over it, the best you can forecast is it bumps along the bottom.
What is so depressing is that this argument was had in the 1930s. I think that Europe generally has got itself into some terrible problems. Greece has underlying problems. As for what happened last night, it needed to be done, but it does not get Greece out of the woods.
Former UK Chancellor Alistair Darling (Photo: Heathcliff O'Malley)
08.10 All this was nearly overshadowed by a damning troika report leaked last night, suggesting Greece could need a bail-out of up to €245bn if Greece's debt reduction didn't go to plan:
The debt trajectory is extremely sensitive to program delays, suggesting that the program could be accident prone, and calling into question sustainability.
Read the full leaked report here (page 6 has the damning bit - click on the link below to enlarge):
08.04 The full Eurogroup statement is here. The committee leading negotiations for banks also released a statement in the early hours. It was keen to emphasise that Greece was the exception, not the rule when it comes to debt write-downs. Portugal (which has always denied any talk of debt restructuring), take note:
The Co-Chairmen said that the agreement would contribute to the broader efforts of the Euro Area to resolve sovereign debt problems while supporting global growth and financial stability. They emphasized that the unprecedented nature of the package underpinning the consensual resolution of debt restructuring discussions with Greece reflects the exceptional and unique circumstances of Greece and the broader context of European government bond markets.
07.59 Here's a clip of Mr Juncker and Monetary Affairs Commissioner Olli Rehn discussing the "marathon talks":
07.55 Greek Prime Minister Lucas Papademos was also "very happy" with the deal, and said he was confident that the country would hold up its end of the bargain. He told reporters:
I'm convinced that the government after election will also be committed to implement the programme fully... because it is in the interests of the Greek people [...] It’s not an exaggeration to say that today is of historic importance for the Greek economy. We have no luxury for delays.
Greek Finance Minister Evangelos Venizelos (L) and Greek Prime Minister Lucas Papademos give a joint press after their Eurogroup Council meeting (Photo: Getty)
07.49 Eurogroup President Jean-Claude Juncker described the agreement as "far reaching" and added that private sector involvement:
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.
07.38 Brussels correspondent Bruno Waterfield has been following events throughout the night. More from him:
In return for the new bailout, Greece must implement a savage austerity programme, accept an “enhanced and permanent” presence of EU officials supervising Greek finances and set up a blocked account with three months debt interest payments in it at any time.
“The Greek economy can no longer rely on a large administration financed by cheap debt, but by investment to facilities new growth and jobs,” said Olli Rehn, the EU’s economic and monetary affairs commissioner.
However the agreement was overshadowed by the pessimistic debt sustainability report compiled by the IMF, ECB and Commission, that warned of a “downside scenario” of Greek debt hitting 160pc of GDP in 2020 - far higher that the agreed 120.5pc target.
Long night? Luxembourg Prime Minister and Eurogroup president Jean-Claude Juncker scratches his eyes during a press conference (Photo: AFP).
07.25 In a nutshell:
• Eurozone leaders have agreed a programme that will cut Greece's debt pile to 120.5pc of GDP in 2020. This ensures IMF participation. The IMF will announce how much it is willing to cough-up in March.
• To get to this magic 120pc figure, private investors will take a 53.5pc hit on their holdings of Greek debt - more than the 50pc agreed in October. According to JP Morgan, this represents a real loss of 75pc (compared with 70pc on a 50pc haircut). This will reduce privately held Greek debt by €107bn.
• Investors have also accepted lower initial interest rates on new bonds. Rates will start at 2pc and increase to 3pc between 2015 and 2020. From February 2020, the rate will be 4.3pc. Until now, discussions had assumed a coupon of 3pc between now and 2020, rising to 3.75pc from 2020 to maturity.
• Eurozone governments will take a further hit on the loans made to Greece in its inital 2010 bail-out.
• The ECB will also pass profits it made from its purchases of Greek bonds back to Athens via central banks.
• To make sure all goes smoothly, Big Brother will be watching. Permanently. The troika (made up of the ECB, IMF and EU), will have an "enhanced and permanent presence on the ground in Greece" to make sure the country holds up its end of the bargain.
• An 'escrow' account will be set up to service Greek debts. It will hold three months debt interest payments at any time.
06.56 And they all lived happily ever after...again.
It promised to be a long night in Brussels, and after a 14 hour marathon meeting, Jean-Claude Juncker, President of the Eurogroup, emerged with International Monetary Fund head Christine Lagarde, EU Commissioner Olli Rehn and eurozone bail-out fund boss Klaus Regling to tell us all will be OK in euroland.
(L-R) EFSF CEO Regling, IMF Managing Director Lagarde, Eurogroup chairman Juncker, and European Monetary Affairs Commissioner Rehn hold a joint news conference after a Eurogroup meeting in Brussels (Photo: Reuters)
06.50 Good morning and welcome back to our live coverage of the eurozone debt crisis.