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Greek Bailout Loan Disbursed To Rescue Private Sector

11/30/2011 02:42 PM ET

Greek Bailout Loan - Euro-area finance ministers approved a 5.8 billion-euro ($7.7 billion) loan to Greece under last year’s bailout after eliciting budget-austerity pledges from Greek political leaders backing a unity government.

The go-ahead for the sixth disbursement of funds under the fully taxpayer-funded package of 110 billion euros shifts the spotlight to a second rescue of Greece that foresees 50 percent losses for private investors in Greek bonds. The new aid plan, crafted at an October summit, also includes 130 billion euros in extra public funds.

After initially endorsing the next Greek bailout loan on Oct. 21, the euro area froze the payment this month because former Socialist Premier George Papandreou announced a referendum on the second rescue plan. He later called off the vote, resigned and was succeeded by ex-central banker Lucas Papademos, whose interim government has the support of three parties to press ahead with budget cuts needed for continued aid.

“We decided to release the sixth disbursement of the Greek program now that prior actions have been met,” Luxembourg’s Jean-Claude Juncker told reporters yesterday in Brussels after chairing a meeting of the 17 euro-area finance ministers, who also discussed growing threats to Spain and Italy from the debt crisis triggered by Greece two years ago.

Greece, which faces a fifth year of economic contraction in 2012, says it needs the next international aid payment by mid- December. The euro area’s installment is part of an 8 billion- euro disbursement, of which the International Monetary Fund will provide the remainder.

The IMF, which is funding almost a third of last year’s package for Greece, must still approve its 2.2 billion-euro share of the next payment to the country. Greek Finance Minister Evangelos Venizelos said in a statement handed out in Brussels that the IMF planned to give its verdict on Dec. 5 and Juncker said the funds would be transferred to Greece by the middle of December.

Since Papademos became prime minister on Nov. 11, the euro area and IMF have sought assurances from the leaders of the parties backing the government that they were committed to reining in Greece’s budget deficit. The gap was 10.6 percent of gross domestic product in 2010 and is projected to be 9 percent this year.

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