European markets rise on deal to cut Greek debt

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European markets have risen in early trades after the EU and the International Monetary Fund agreed a £35bn package to reduce Greece’s rising debt problems.

The deal, which unblocks the latest tranche of Greek bailout, has seen the FTSE 100 rise by 0.6 per cent to stand at 5819.76. The French Cac 40 and the German Dax were also up by 0.8 per cent while the FTSEurofirst 300 was up 0.7 per cent at 9.38 BST.

The £27.8bn instalment of international aid will be given to Greece by December 13, while another another £7.5bn will be paid in tranches in the first three months of next year, according to the Telegraph.

Greece is forecast to reach a debt to GDP ratio of 175 per cent by 2016 under the new plan. This will then fall to 124 per cent by 2020. Both the EU and the IMF has agreed to be responsible for a Greek debt to GDP ratio of less than 110 per cent by 2022.

Meeting for the third time in two weeks, eurozone finance ministers agreed to lower interest rates to Greece by 100 bps on the original €110 billion lent to the country, to extend all loan maturities by 15 years and to defer interest payments on euro bailout fund loans by 10 years.

The EU and the IMF also plan to introduce an unspecified bond buy back scheme for the Greek government in an attempt to bring about a 20 per cent reduction of debt.

Eurogroup of finance ministers president Jean-Claude Juncker says: “This is not just about money. This is the promise of a better future for the Greek people and for the euro area as a whole, a break from the era of missed targets and loose implementation towards a new paradigm of steadfast reform momentum, declining debt ratios and a return to growth.”

IMF managing director Christine Lagarde says: “Taken together, these measures will help to bring back Greece’s debt ratio to a sustainable path and facilitate a gradual return to market financing,” she said.

“I welcome the commitment by European partners to bring back Greece’s debt to substantially below 110pc of GDP by 2022, conditional on full implementation of the programme by Greece. This represents a major debt reduction for Greece relative to its current debt trajectory.”

The IMF and the EU have been at loggerheads over attempts to reach a deal over Greek debt after Juncker announced plans for Greece to be given an extra two years to meet its debt reduction target of 120 per cent of GDP.