Greek borrowing rates down slightly after European finance ministers set out blueprint for aid

Markets cautious about EU aid pledge to Greece

BRUSSELS — European countries’ pledge to help Greece out of its debt crisis with loans received a lukewarm welcome from markets as investors remained worried that the form and timing of the aid remains unclear.

Stock markets rose Tuesday but the euro traded in a narrow range around $1.3675 after EU finance ministers said they had a blueprint for financial help for Greece — which they hope the debt laden country will never need.

The exact form of the help — likely some form of loan — was yet to be decided. Jean-Claude Juncker, the head of the eurozone group, said European Union leaders meeting March 25-26 would make the final decision on the size and the type of financial rescue.

“There is no loan facility at the moment, because Greece hasn’t asked for anything but if this is the case, I’m sure all the euro countries will be there,” said Spanish Finance Minister Elena Salgado, as she arrived for the meeting.

Greece needs to borrow euro54 billion ($74 billion) this year — euro20 billion of that in April and May — but is being forced to pay higher interest rates than more fiscally prudent European nations.

The country’s financial troubles have undermined the shared euro currency and raised fears that other indebted governments may face similar difficulties borrowing money.

A Greek default would be a serious blow to the euro, and economists and financial markets assume the EU would find some way to step in and stop it, although European governments have been reluctant to say how they might do that. Putting up taxpayer money to cover Greece’s budget misdeeds could be unpopular in other countries.

While most European finance ministers were tightlipped about their new mechanism, Dutch Finance Minister Jan-Kees De Jager gave some details of how the potential bailout — which he called a “safety net” — might work.

Bilateral loans from other governments would be on a voluntary basis, but EU leaders could also decide on a eurozone initiative, he said.

In that case, the contribution of each country would be based on their share in European Central Bank capital, a calculation based on population and share of gross domestic product.

That could leave Germany shouldering around 27 percent of the burden, France 20 percent, Italy 17.9 percent, and 5.7 percent for the Netherlands.

“There is now talk of an instrument with such tough conditions that you cannot talk of a bailout,” said De Jager.

Greek Finance Minister George Papaconstantinou welcomed the support, although he stressed Greece has not asked for financial help.

“What we have always asked for is political support in order to have access to markets at reasonable borrowing rates,” he said at a press conference in Brussels.

During a visit to Hungary, Greek Prime Minister George Papandreou said that the decision by eurozone finance ministers is a “step forward — but he said “we have not reached closure” which must wait for the leaders meeting.

Greece has warned that its budget problems will worsen unless interest rates come down — and the eurozone pledge of help is one way of trying to convince markets that they should charge less for Greek debt.

German Finance Minister Wolfgang Schaeuble told parliament on Tuesday that no decisions have been made regarding Greece.

“However, if there would be an immediate situation of insolvency, we would have to react to it,” he said.

Tuesday’s market reaction showed investors remain cautious as long as the details are not ironed out.

Ben May, European economist at Capital Economics, noted it was still uncertain how any bilateral loans would work and what would trigger the aid. Still, the fact that help would not be limited to guarantees was a positive sign.

“While explicit support could still be some way off, the latest announcement is a step forward,” he said.

In a bid to soothe investors, Greece has announced painful tax increases and spending cuts to squeeze its budget and save another euro4.8 billion this year, including public sector wage cuts that angered unions and sparked two nationwide strikes last week.

AP Business writers Aoife White in Brussels, Derek Gatopoulos in Athens, Pablo Gorondi in Budapest, and Kirsten Grieshaber in Berlin contributed to this report.