George Papandreou 311.
(photo credit: Associated Press)
Heavily indebted Greece won a major pledge of financial support from the other countries that use the euro and the International Monetary Fund on Thursday in a deal that aims to halt a government debt crisis undermining confidence in Europe's currency union.
The joint eurozone and IMF bailout program comes with strict conditions and makes no money available right now. It could be tapped only if Greece cannot raise funds from financial markets. And it would require the unanimous agreement of the 16 eurozone countries to release the loan funds.
Eurozone nations who agreed on the plan proposed by Germany and France, the zone's two largest members, also called for much tougher rules and sanctions to prevent government debt and deficits from getting out of control in the future. They also want stricter oversight for member economies to prevent another crisis.
The bailout program could 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.
The deal at a summit meeting Thursday night in Brussels was a clear victory for German Chancellor Angela Merkel, who had taken a tough line on any bailout. She demanded that a rescue for Greece only come when the country runs out of other options and said it 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 Washington D.C.-based lender has already joined the EU in bailing out and demanding budget cuts from three EU members that don't use the euro: Hungary, Latvia and Romania.
The eurozone-IMF deal was confirmed by German, Portuguese, Spanish and Greek officials at the summit of European Union leaders. They gave few details ahead of formal announcement of the deal. It was unclear whether the formal announcement would come later Thursday.
European and US stock markets rose earlier Thursday on news that a financial rescue package for Greece was taking shape. Market worries over Europe's weeks-long hesitation to set up a safety net for eurozone members who can't pay their bills has sent the euro sliding to a 10-month low. The euro traded at $1.33, down from $1.51 in November.
Portugal's Prime Minister Jose Socrates told reporters all the 16 countries using the euro would contribute — including his indebted nation. "The interest rates will be reasonable and not speculative," he said.
Greek Prime Minister George Papandreou said the deal was "very satisfactory" and that he had managed to convince other governments "that they are now dealing with a Greece that is credible, that has a plan and a strategy for its course."
He also praised a European Central Bank statement that it would keep accepting lower-rated government bonds — such as Greece's — as bank collateral, which will shore up investor interest in buying Greek debt.
Germany and France earlier urged adoption of a deal in a draft text seen by the Associated Press. The document did not promise cheap loans to Greece — which wants to borrow at rates lower than those demanded by bond investors wary of the country's shaky finances.
It said loans would not be granted at average euro area interest rates, but be based on the borrower's creditworthiness to urge them to return quickly to normal market funding.
It does not mention a figure for a potential bailout. Two diplomats speaking on condition of anonymity say the total rescue plan for Greece could total some €22 billion with the majority coming from European nations and the rest from the IMF.
Greece needs to borrow some €54 billion this year and must refinance
some €20 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
Germany's Merkel was not sympathetic, saying financial rescue could only come in an "exceptional emergency."
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.