Eurozone leaders agree €45bn rescue package for Greece
European governments have put together a loan package worth at least €45bn for debt- burdened Greece -- of which Ireland's share will be approximately €450m -- as they try to stamp out its fiscal crisis and restore confidence in the euro.
Forced into action by a surge in Greek borrowing costs to an 11-year high, finance ministers from the 16 eurozone countries said they would offer the loans at three-year interest rates of around 5pc in case Greece needs the money. A further, unspecified sum would come from the International Monetary Fund.
"This is a step of clarification that markets are waiting for -- it shows there is money behind this," Luxembourg Prime Minister Jean-Claude Juncker told reporters in Brussels yesterday. "The initiative for activating the mechanism rests with the Greek government."
With the euro facing the sternest test since its debut in 1999, the bloc manoeuvred around rules barring the bailout of debt-stricken countries, aiming to prevent Greece's financial plight from spreading and to mute concerns about the currency's viability.
The euro has dropped 5.7pc against the dollar this year as the discord within Europe over the response to the Greek crisis sapped faith in Europe's economic management.
A "loaded gun" to ward off speculators is now "on the table", Greek Prime Minister George Papandreou told local media yesterday. What would trigger the unprecedented European lending was left unanswered by the euro-region officials, which included European Central Bank president Jean-Claude Trichet. Also left open was how much the Washington-based IMF would chip in for 2010, and how much Greece might need in 2011.
"We cannot speak on behalf of the IMF, but we know that they are ready to cooperate and contribute with a substantial amount," European Union economic and monetary commissioner Olli Rehn said. "It is really up to the IMF to speak for itself. We have to respect their independence."
Rehn said the IMF would likely put up about a third of any aid plan, indicating another €15bn in possible IMF funds.
European pledges in February and March to provide aid in an emergency failed to prevent Greek 10-year bond yields from soaring to 7.5pc on April 8, according to Bloomberg generic prices, amid concern that Papandreou's government will be swamped by its bills.
The jump in Greek yields to the highest since December 1998 helped overcome resistance to a loan package in Germany, which as Europe's biggest economy would contribute almost a third of the loans, the largest single share.