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Europe

Eurozone nations pledge 30 billion euros for Greek aid package

Video by Elena CASAS

Text by News Wires

Latest update : 2010-04-12

Finance ministers from the sixteen countries that share the euro currency have offered Greece a rescue package worth 30 billion euros (40 billion dollars) to help Athens overcome its massive debt crisis.

AFP - Europe Sunday revealed an aid package worth 30 billion euros this year alone for debt-ridden Greece, as it unfurled a massive safety net designed to retore confidence in the euro single currency.

Finance ministers from the 16 countries that share the under-pressure euro currency agreed a three-year financing programme at interest rates of around five percent, which they said represents a slight premium compared to standard International Monetary Fund levels.

The decision to spell out the scale and the terms of the aid, which will involve all of the eurozone members, is aimed at soothing markets that have dragged down the euro's value against the dollar and forced up the interest rates Greece has to pay to borrow money.

The Greek government welcomed the announcement but stressed that no request to activate the debt support had been made.



"The total amount put up by the eurozone member states for the first year will reach 30 billion euros (40 billion dollars)," eurozone finance chief and Luxembourg Prime Minister Jean-Claude Juncker told a press conference after a conference call between peers.

Juncker said the financing would be "completed and co-financed by the IMF."

The IMF's role -- which would be unprecedented for a eurozone member state -- is due to be the focus of talks starting on Monday.

European Commissioner for Economic and Monetary Affairs, Olli Rehn, said it would be for the IMF to reveal its precise share, but that "in principle" the split would be of the order of 2:1 for funding between the EU and the IMF.

An EU official said it would mean another 15 billion euros.

The rescue package is intended as a back-up plan in case Greece is no longer able to raise funds to repay its debts and finance its budget on commercial markets because of excessively high interest rates.

Germany's agreement was seen as crucial, with Berlin earlier insisting that the loans should be at market rates and opinion polls showing strong public opposition to a bailout for Greece.

"The Greek government has not asked for the activation of the mechanism, although it is now immediately available," Greek Finance Minister George Papaconstantinou said.

"We believe that we will be able to continue to borrow on the markets in an unobstructed fashion."

Hopes that repeated political expressions of solidarity with Greece, which has enacted savage budget cuts and raised a host of taxes in a bid to plug the gaping holes in its national finances, would suffice were dashed by a spike in Greek bond yields, or the interest Athens must pay its creditors over the long term.

The yield on Greek 10-year bonds last week soared past 7.5 percent, its highest since 1998.

Rehn said that the rate of "around five percent" for these solidarity loans did not constitute any "subsidy," which was aimed at reassuring German political leaders and taxpayers that rules banning any cross-border bailout would not be breached.

Juncker added that additional sums for subsequent years would be determined at a later date.

However, "we are now operational if the mechanism has to be activated," Juncker said.

Greek Prime Minister George Papandreou earlier on Sunday described the agreement as a "gun on the table."

He added: "The question is whether this mechanism will persuade the markets" and result in lower rates, simply through its existence. "If not... it could be used."

Greece has suffered successive credit downgrades from Fitch and the other two major ratings agencies, Moody's and Standard & Poor's, heightening its risk profile among investors.

Priming the EU aid mechanism comes at exactly the right time for Greece which on Tuesday intends to auction a 1.2-billion-euro package in treasury bills.

Greece has to find around 11.5 billion euros by next month, part of some 54 billion euros needed for this year to cover debt repayment and urgent budget needs.

Its total debts were last tallied at some 300 billion euros.

 

Date created : 2010-04-11

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