After months of seemingly endless false starts, heated negotiations and parliamentary votes, eurozone finance ministers are expected to agree to on a $172 billion bailout package for Greece on Monday.
The Mediterranean country has also been locked in talks with private creditors who have agreed to take reductions, or so-called haircuts, on their $130 billion holdings of Greek paper. However, the debt exchange has not been finalized and is unlikely to take place until the bailout from the European Union and International Monetary Fund is finished.
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"I am of the opinion that today we have to deliver, because we don't have any more time," Jean-Claude Juncker, the prime minister of Luxembourg and chair of the Eurogroup said as he arrived at the meeting in Brussels, according to Dow Jones Newswires.
The road to receiving the bailout has been a long one for Greece. In return for the aid, the so-called Troika, which is made up of the European Union, European Central Bank and International Monetary Fund, has pushed for Greece to take on painful austerity measures. The Hellenic Parliament passed a sweeping reform package slightly more than a week ago, and the leaders of Greece’s main political parties have also signed on. However, the moves have sparked intense, and sometimes violent, protests, strikes and other forms of civil disobedience.
Still Not a Done Deal
The situation remained fluid as night fell in Brussels on Monday, and talks have fallen apart at the last minute many times in the past. Indeed, several eurozone countries, including Germany, the bloc’s economic powerhouse, have publicly expressed concerns over how specifically rescue funds would be disbursed.
To that end, there has been discussion of an escrow account being set up that would control how the aid is spent, but it remained unclear if a specific decision was made on that front. Still, hopes were running high that the meeting would end the months-long stalemate.
“Greece comes to today's critical meeting of the Eurogroup, having fulfilled all the preconditions that have been placed to approve the new program," Greek Finance Minister Evangelos Venizelos said, according to Dow Jones.
"It is consequently apparent that we expect the long period of uncertainty, that benefited neither the Greek economy nor the eurozone overall, to end today."
Many European bourses ended the day with big gains; partially as a result of hopes the bailout would finally be passed. Meanwhile, U.S. stock-index futures advanced modestly ahead of Tuesday’s trading session.
The stakes are high for Greece, the common currency, and Europe’s financial system at large. The embattled country has a roughly $19.1 billion bond payment coming due on March 20. Without the rescue aid, the country will most likely have to default on that tranche of its debt, analysts have said.
Default Could Imperil Financial System
A messy default could be damaging in several ways: First, it will raise serious concerns as to whether Greece can remain part of the 17-member currency bloc, or whether it will need to go back to the Drachma. A spontaneous exit from the euro -- which would be an unprecedented event -- could send shockwaves through European financial markets.
On top of that, it may weigh on the balance sheets of already ailing European banks that hold the bonds and potentially trigger default clauses in certain financial instruments. Many banks write insurance policies in the form of credit default swaps and other complex derivatives that protect against defaults of public and private debt. While it is difficult to explicitly quantify the impact of these policies being triggered, analysts have said institutions that have an exposure that is not completely hedged could take a blow.
Lastly, the sovereign debt of other, larger and more systemically important, countries could take a hit as a result of a decreased risk tolerance across the eurozone. In fact, Italy and Spain, both considerably larger economies than Greece, have seen their credit markets shaken by Greek developments.