The euro stabilized in markets on news of a European bailout for Greece. The historic deal shares eurozone loans with IMF funding and rewrote the rules to aid other troubled eurozone countries including Portugal, Spain and Ireland.
AFP - European leaders clinched a deal to rescue Greece from its debt crisis, with a standby package of loans backed by the International Monetary Fund halting the euro's slide on Friday.
The historic pact -- which re-writes the eurozone rule-book for all -- was designed to "reassure all holders of Greek bonds" that European partners "will never abandon Greece," according to European Union president Herman Van Rompuy at a European Union summit in Brussels.
The EU figurehead said all 16 eurozone nations, including Greece, had committed to "participate," which was also designed send a message to speculators not to simply switch their attentions from Greece to a new target in trouble, whether Portugal, Spain or Ireland.
More broadly, leaders further agreed on the need for stronger "economic governance" in Europe with strengthened penalties for countries that consistently breach the EU rules.
In early London deals on Friday, the currency pulled away from 10-month lows against the dollar, up from 1.3277 dollars in New York late on Thursday.
"I would have been surprised if the euro had not gone in that direction," said Luxembourg Prime Minister Jean-Claude Juncker as he arrived for the second day of the summit.
However, Credit Agricole analyst Mitul Kotecha warned that criticism of the IMF's involvement by European Central Bank chief Jean-Claude Trichet -- although he later fell into line -- "has kept the euro under pressure."
Trichet was on the back foot in Brussels, having cautioned beforehand against "all signs of a lack of responsibility" for the eurozone, which he considered would be "obviously very, very bad."
Kotecha underlined: "The damage was already done and any relief to euro-dollar (exchange rates) will be short-lived."
After months spent warily sizing up the threat, Greek Prime Minister George Papandreou insisted that both "Europe and Greece will emerge stronger from this crisis."
German Chancellor Angela Merkel and French President Nicolas Sarkozy paved the way during an initial, private tete-a-tete.
Merkel said on Friday that Europe had "proved its capacity for action on a major issue, at the same time working to protect euro stability and demonstrating solidarity towards a country in difficulty."
Late on Thursday, Sarkozy had described it as a "major step which also obliges us to rethink our mechanisms for economic and budgetary surveillance, to ensure that such crises do not re-occur."
The button would only be pressed on bilateral loans if normal market credit were to dry up or become too expensive, but the aim of the pledge was to ensure that did not happen.
Having built up a 300-billion-euro debt black hole, Athens has endured strikes and violent protests after letting Brussels dictate a radical programme of public sector budget cuts and tax rises in a bid to slash 2010's national deficit.
Reaction in Greece was generally one of relief.
"We can breath again," mass daily Ta Nea said of the deal.
While Portugal has also suffered a credit-rating downgrade, that kind of reaction on the streets has yet to be seen in Lisbon, and Van Rompuy insisted the prospects of a run on Portuguese bonds was a "completely different" proposition.
The International Monetary Fund has in the past helped EU countries Hungary, Latvia and Romania, but has never been involved in planning a financial rescue for a eurozone nation.
A task force drawn from the full, 27-member EU will be given until the end of 2010 to draw up recommendations for new sanctions being brought against wayward eurozone spenders in future, Van Rompuy said.
However, an accord between Sarkozy and Merkel to develop coordinated European economic "government," a demand from Paris that survived the cut in a French-language declaration, was watered down to "governance" in the English version.
Date created : 2010-03-26