The European Union and the International Monetary Fund (IMF) will rescue debt-laden Greece from bankruptcy with a second multi-billion euro financial aid package, a year after it received a 110 billion euro ($159 billion) bailout.
The Finance ministers of the euro zone nations reached a basic understanding on a new rescue package for their EU partner at a meeting in Brussels on Tuesday afternoon, but shelved a decision on the level of assistance and other key details for their next meeting in Luxembourg in a week's time.
They gave a few details of their discussions, but media reports quoting EU diplomats suggested that they are preparing for a bailout package ranging between 90 billion euros to 120 billion euros to prevent the country from defaulting on its debts and dragging the entire euro zone into another sovereign debt crisis.
The meeting was overshadowed by Monday's downgrading of Greece by Standard & Poor as the least credit-worthy nation. The rating agency cut Greece three notches from B to CCC, dumping it to the lowest level behind countries such as Pakistan, Ecuador and Jamaica.
The downgrading sent the borrowing costs for Greece's 10-year bonds to more than 17%, making it impossible for the government to raise funds from the capital markets.
At the centre of the finance ministers' discussions was a German proposal for a "soft rescheduling" of Greece's outstanding debts with the involvement of private creditors in order to give the country more time to pay back its debts.
German Finance Minister Wolfgang Schaeuble has proposed that banks, investment funds and insurances should be allowed to exchange their Greek government bonds, which are maturing, for new bonds having a maturity of seven years.
Schaeuble's proposal is strongly opposed by some of the Germany's EU partners as well as the European Central Bank, which expressed fears that banks will be making heavy losses as a result of debt write-offs and drop in interests and pressurising banks into accepting a debt rescheduling could lead to a banking crisis.
They wanted banks to be involved in a debt rescheduling on a voluntary basis.
Extending the Greek debt is a key part of a second bailout, designed to give the country more time to sort out its debts and Germany wants to involve private creditors in a debt rescheduling to ease the burden on taxpayers. Without fresh financial assistance from the EU and the IMF, Greece will default on some payments, which are due in July.
