EU to nail down safety net

08:50, April 12, 2010      

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European finance ministers holding emergency talks Sunday agreed to fund up to 30 billion euros ($40 billion) of emergency loans to debt-stricken Greece, at interest rates of around five percent.

"The total amount put up by the eurozone member states for the first year will reach 30 billion euros," said the finance chief for the 16 countries sharing the euro currency, Luxembourg Prime Minister Jean- Claude Juncker.
Juncker said the financing would be "completed and co-financed by the International Monetary Fund," but European Commissioner for Economic and Monetary Affairs Olli Rehn said it would be for the IMF to reveal its precise share.

Officials will enter those negotiations from today.

Greece's debt crisis has rattled Europe in recent months, raising investor fears about rising debt levels and pushing down the value of the euro.

Greek Prime Minister George Papandreou indicated in the To Vima's newspaper that Athens might use the aid mechanism if markets remain skeptical.

He described the agreement -in-the-making as a "gun on the table" which is about to be loaded, while dismissing as "a joke" the idea that Athens could ditch the euro. "Greece's place is in the eurozone," Papandreou told To Vima. "Any other scenario is a joke."

His Finance Minister George Papaconstantinou, however, told another newspaper that Greece considered it was important to clarify how the EU-IMF aid mechanism would work but believed it would not need to use it.

"The aid mechanism is a very important safety net. We have repeatedly said that it was crucial to create and detail it, but we hope and believe that Greece will not use it," Papaconstantinou told Realnews newspaper.

Papandreou held phone talks Friday with EU President Herman Van Rompuy, European Central Bank chief Jean- Claude Trichet, EU Commission head Jose Manuel Barroso and Jean-Claude Juncker.

Greece has labored for months to lower its borrowing costs but uncertainty surrounding the EU fall-back plan and market reaction to contradictory claims attributed to Greek officials had steadily dashed its hopes.

The yield on Greek 10-year bonds last week soared past 7.5 percent, its highest since 1998, while the Athens stock exchange lost eight percent of its value in three days before a 3.4 percent gain Friday.

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 for use would come at exactly the right time for Greece, which intends to auction a 1.2 billion euro ($1.6 billion) package in treasury bills on Tuesday.

Greece has to find around 11.5 billion euros ($15.3 billion) by next month to cover its obligations, part of a total loan blueprint of around 54 billion euros ($72 billion) planned for this year.

Source: Global Times


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