Today, Euro zone finance ministers will meet to decide whether Greece has done enough to warrant a huge bailout loan of €130 billion. Greece needs the loan in order to avoid bankruptcy midway through March, when a massive repayment on its governmental debt must be completed.

Greece has effectively struggled through five years of recession, leaving the country with a debt that is estimated at more than 160 per cent of its Gross Domestic Product.

The new rescue plan would see 100 billion euros of Greek debt written off and private lenders would accept a 70 per cent reduction in what Greece owes them.

Tens of thousands of Greeks took to the streets last week to protest austerity measures demanded by the EU and enforced by Greek leadership.

Greek Prime Minister Lucas Papademos flew to Brussels yesterday to help clinch the deal.

Luke Baker, Brussels Bureau Chief at Reuters, explains the finer details of the deal:

Under one crucial element of the deal, Greece will have around 100 billion euros of debt written off via a restructuring involving private-sector holders of Greek government bonds.

Banks and insurers will swap bonds they hold for longer-dated securities that pay a lower coupon, resulting in a real 70 per cent reduction in the value of the assets.

The bond exchange is expected to launch on March 8 and complete three days later, Athens said on Saturday. That means a 14,5 billion euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.

The vast majority of the funds in the 130 billion euro programme will be used to finance the bond swap and to ensure that Greece’s banking system remains stable: 30 billion euros will go to “sweeteners” to get the private sector to sign up to the swap, 23 billion will go to recapitalise Greek banks.

A further 35 billion will allow Greece to finance the buying back of the bonds, and 5,7 billion will go to paying off the interest accrued on the bonds being traded in.

The overall objective is to reduce Greece’s debts from 160 per cent of GDP to around 120 per cent by 2020 – the figure and timeframe that the IMF, ECB and the European Commission, together known as the Troika, have established as sustainable.

The sceptics have focused on the fact that Greece’s economy continues to shrink. Year-on-year. In the last quarter of 2011, Greece’s economy shrunk by a further seven per cent, raising fears that the country will have to default if it cannot meet its obligations.

[Source: Reuters]