Eurozone countries agree on bailout plan for Greece
Friday, March 26, 2010
BRUSSELS -- Heavily indebted Greece won a major pledge of financial support from the other countries that use the euro and the International Monetary Fund in a deal that aims to halt the government debt crisis undermining Europe's currency union.
The joint eurozone and IMF bailout program comes with strict conditions, making no money available to Greece right now. It could be tapped only if Greece -- or other financially troubled eurozone members -- cannot raise funds from financial markets and would require the unanimous agreement of the 16 eurozone countries to release the loan funds.
The agreement at a Thursday meeting of European Union leaders was a clear victory for German Chancellor Angela Merkel, who demanded that a rescue for Greece only come when the country runs out of other options. She also insisted that any backstop must include the IMF.
It was also a comedown for the French and the European Central Bank, which had opposed turning to the IMF out of fear it would damage the euro's prestige and show that Europe was unable to solve its own financial woes. The eurozone has never turned to the IMF.
ECB president Jean-Claude Trichet said he had wanted a program that emphasized governments' "maximum responsibility" to limit debt, praising the program as a "workable solution" that would "normally not need to be activated."
He said Greece should now "progressively regain the confidence of the market" and be able to borrow at lower interest rates. Trichet said that he assumes markets will end recent volatility. "That's my working assumption," he said.
Greece's financial difficulties have weighed on the shared currency, driving its exchange rate down to $1.33 this week, the lowest level in 10 months.
It has also showed up the eurozone's inability to keep member economies' debt and deficits within strict limits -- and the lack of a safety net for eurozone countries that risk being unable to pay their debts.
The new plan sets up a possible rescue program for the first time. All eurozone nations are pledging to help -- although any contribution would be voluntary.
"We hope that it will not have to be activated," said the European Union's president, Herman Van Rompuy. "This would be triggered as a last resort." He said the program should tell markets to "have confidence that the eurozone will never abandon Greece."
Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of eurozone finance ministers, said that "speculators will be discouraged because they know from now on we have this instrument."
Greek government officials say they believe the existence of a eurozone safety net will help them borrow at lower costs. They expect the spreads to fall significantly in coming weeks.
"We hope and believe that we won't ever use it," a Greek official said under condition of anonymity.
French President Nicolas Sarkozy said eurozone nations would offer loans totaling some two-thirds of the package with the IMF offering the last third. "We didn't count up to the last euro," he said. "It can be adjusted."
Juncker said they did not agree an amount of a possible bailout for Greece. Two diplomats earlier said the total loans would be some euro22 billion.
Eurozone nations also want to take steps to prevent debt and deficits getting out of control again, calling for tougher rules and sanctions. Van Rompuy has been tasked with drawing up possible options to toughen EU oversight of member's budgets and economic performance.
The bailout program could also be used to help other vulnerable eurozone nations such as Portugal and Spain who have seen debt soar after the global economic turmoil of the past several years saw their economies sink into recession.
Greece needs to borrow some euro54 billion this year and must refinance some euro20 billion in April and May. It has been able to sell bonds but says it cannot keep paying the high interest rates investors have been demanding to counter the risk they see that Greece could default.
Germany's Merkel was not sympathetic, saying financial rescue could only come in an "exceptional emergency."
Germany sees itself as a fierce defender of prudent budget spending and is unwilling to use its taxpayer money to help Greece, which overspent and faked budget figures for years. Merkel also faces a key regional election May 9 which could damage her center-right government by overturning its majority in Germany's upper house of parliament.