Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

Greece would receive an additional 109 billion euros, meeting its financing needs through 2014 and enabling the IMF to continue as part of the troika. The interest it paid on its loans would be lowered to 3.5 percent. Maturities would be extended and, through a menu of PSI options, Greece’s creditors would make a contribution, though the precise amount remained to be determined. The ECB would be indemnified for any losses it suffered. If the Greek banks suffered irreparable damage they would be recapitalized out of troika funds.59 Most important, the governments stated emphatically that PSI applied only to Greece. It was the only insolvent eurozone sovereign. All others would honor their obligations without fail. To contain contagion the EFSF would be beefed up and at the behest of the ECB it would be empowered to enter the secondary market and to establish credit lines for nonprogram countries, such as Spain and Italy. The EFSF would no longer act only as an ultima ratio, as Merkel had insisted since March 2010, but as a preemptive agency, helping to stabilize markets to forestall any threat arising. These, finally, were the elements of a workable solution—buy-in by the Greeks, debt restructuring, further loans, cooperation with the ECB and backstopping by a newly empowered EFSF. There was even partial recognition of the need for bank recapitalization. The general structure was fine. But did the sums add up? And who was to pay?