European ministers have unanimously agreed a €30bn (£26bn) emergency aid package for Greece, to help ease the country's economic crisis.
Finance ministers from the 16 eurozone countries hammered out the details of the bailout plan on a conference call yesterday afternoon. While the Greek government has not formally asked for support, if needed it will have access to up to €30bn in loans this year. The International Monetary Fund (IMF) will provide additional support.
Jean-Claude Junker, the chairman of the eurozone finance ministers, said that all the members will take part in the mechanism, adding the move was not a violation of the "no bailout" clause in the EU treaty as it is made up of loans that are to be repaid, rather than subsidies. "Today's decision is meant to encourage Greece to return as soon as possible to a normal financing system," he said. Countries including Spain and Ireland will contribute but their circumstances would be "taken into account," Commission officials said.
One sticking point to an agreement previously was Germany's opposition to handing Greece loans with interest rates at below market levels. The market rate is currently above 7 per cent, but Greece has warned that level of interest would trap it in ever-worsening debts. Germany dropped its opposition over the weekend, it emerged, clearing the way for an agreement.
Economic and Monetary Affairs Commissioner Olli Rehn said the potential aid could be priced at around 5 per cent for a three-year loan. "It's very clear that it's a non-concessional loan and no subsidy," he said. Tomorrow, officials from the IMF will meet with eurozone ministers to sketch out the details including how quickly the support can be activated.
José Manuel Barroso, the president of the European Commission, said he was delighted a co-ordinated response was agreed. "This is a clear and strong commitment. It shows the euro area is serious in doing what is necessary to secure financial stability and about its commitment to give support to Greece."
Greece welcomed the agreement. The country is struggling under a €300bn debt pile, and needs to refinance €22bn of debts by the end of May. European leaders agreed to provide assistance, backed by the IMF, last month but the markets remained worried that the plan lacked details. The agreement of a "concrete mechanism" comes at a crucial time as Greece is preparing to raise €1.2bn through a treasury bill auction tomorrow.
Mr Junker said yesterday: "This time around we are laying down the details. This is the steps of clarification the markets are waiting for. It shows that there is money behind us."
The officials denied the decision should have taken place earlier. Mr Junker said that after discussions with a number of heads of state, including German Chancellor Angela Merkel and French President Nicolas Sarkozy, "it was our understanding that the time was right for a decision to be taken today". Greece's prime minister George Papandreou admitted last week that the country may be forced to call for emergency loans. He told a newspaper: "The question remains whether this mechanism will convince markets just as a gun on the table. If it does not convince them, it is a mechanism that is there to be used."
On Friday, he held conversations with senior figures including Mr Barroso and European Union president Herman Van Rompuy. He also held discussions with Jean-Claude Trichet, head of the European Central Bank, and Mr Junker. He said yesterday the plan sent a message that "no one can play with our common currency, no one can play with our common fate."
Greece was hit by a credit downgrade by Fitch Ratings on Friday, leaving it at BBB-, one level above junk. The ratings agency would not rule out further downgrades. It also cut the credit rating of five Greek banks to the same level.
Fitch said in a statement it was "vital that the Greek authorities import credibility from external institutions, underpinned by a credible commitment of financial support".Reuse content