Eurozone governments give Greece €30b loans
Trying again to halt a debt crisis that has hammered the euro, fellow eurozone governments tossed struggling Greece a financial lifeline Sunday, saying they would make euro30 billion in loans available this year alone — if Athens asks for the money.
The International Monetary Fund stands ready to chip in another euro10 billion, said Olli Rehn, the EU monetary affairs chief.
The promise — filling in details of a March 25 pledge of joint eurozone-IMF help — was another attempt to calm markets that have been selling off Greek bonds in recent days.
Markets viewed the March pledge as too vague and carrying such tough restrictions that Greece could not easily get the money. As a result, investors demanded high rates to loan to the government as it struggles to avoid default — rates the government says it can’t go on paying. Greece has some euro54 billion in debt coming due this year and a huge budget deficit.
In an emergency video conference, the finance ministers of the 16-eurozone nations agreed on a complex three-year financing formula that generates an interest rate of “around 5 percent.”
This is less than commercial market rates — which have soared above 7 percent on Greek 10-year borrowing in recent weeks as the debt crisis dragged on — but more than beneficiaries of IMF usually pay. European Central Bank president Jean-Claude Trichet and German Chancellor Angela Merkel have insisted that Greece not get below-market interest rates amounting to an EU subsidy for its past bad behavior.
“This is certainly no subsidy” to Greece, Rehn told a news conference.
The test of Sunday’s announcement will be whether it restores confidence that Greece will not default and gives it a chance to borrow normally at lower rates. Under last week’s rates, Greece would have had to pay more than twice what Germany pays.
The danger is that interest payments themselves begin to sink the budget despite severe cutbacks imposed in recent days. A Greek default would be a serious blow to the euro, rattle markets and inflict losses on European banks that have bought Greek government bonds.
Greek Finance Minister George Papaconstantinou said Greece had not asked for the plan to be activated, and still hoped to borrow on markets rather than seeking a rescue.
“The Greek government has not asked for the activation of the mechanism, even though this is already immediately available,” Papaconstantinou said in Athens. “The aim is, and we believe we will continue to borrow unhindered on the markets.”
Officials, speaking privately, told The Associated Press they first want to see how markets react on Monday.
European Commission President Jose Manuel Barroso said the pledge of cash for Greece showed the 16 euro-zone nations will defend Europe’s single currency and help a partner in trouble.
“It shows that the euro area is serious in doing what is necessary to secure financial stability,” Barroso said in a statement.
“I am convinced that it will help Greece to continue vigorously correct public finances imbalances and to deliver the necessary structural reforms.”
Rehn said the loan deal will be “the clarification that the markets are waiting for.”
Those markets, however, have so far ignored repeated EU claims of support for Greece causing commercial lending rates for Athens to go to 7 percent and more in recent weeks.
At two summit meetings — one in February and one in March — the EU leaders made determined noises about their readiness to end the Greek debt crisis.
But the terms were tough, with Greece needing approval of all 15 other eurozone governments and only if it could not borrow any other way. German fears a bailout with soft loans will only rile German public opinion which already takes a dim view of Greece’s financial housekeeping.
EU and IMF officials will meet Monday to work out details of IMF and EU lending for 2011 and 2012, especially on amounts and loan conditions. Officials estimated that over a three-year period Greece was being offered a total of euro80 billion in financial aid by the EU and the IMF.
Greece has been spending beyond its means for years, leaving it with a 2009 budget deficit of 12.9 percent of economic output. The revelation of its statistics fudging has slammed the euro and gutted market confidence, fueling higher borrowing costs.
Athens plans to cut its deficit to 8.7 percent this year and has launched a euro4.8 billion austerity program cutting public sector wages, freezing pensions and hiking taxes.
Source: AP