Eurozone nations reach agreement on bailout program for Greece, others

Eurozone agrees on bailout plan for Greece

BRUSSELS — Greece won a major pledge of financial support from the other countries that use the euro and the International Monetary Fund in a deal that aims to halt a government debt crisis undermining confidence in Europe’s currency union.

The joint eurozone and IMF bailout program comes with strict conditions and makes no money available right now.

It could be tapped only if Greece or other financially troubled eurozone members cannot raise funds from financial markets. It would require the unanimous agreement of the 16 eurozone countries to release the loan funds.

The deal at a summit meeting Thursday night in Brussels was a clear victory for German Chancellor Angela Merkel, who had taken a tough line on any bailout. She demanded that a rescue for Greece only come when the country runs out of other options and said it must include the IMF.

It was also a comedown for the French and the European Central Bank, which had opposed turning to the IMF out of fear it would damage the euro’s prestige and show that Europe was unable to solve its own financial woes.

Greece’s financial difficulties have weighed on the shared currency, driving its exchange rate down to $1.33 from $1.51 in November. It has also illustrated a basic weakness in the euro: the budget and deficit rules adopted to support it were not strong enough to prevent governments from spending their way into trouble.

A default — if Greece cannot raise money to pay off debt coming due this year — would be a further serious blow to the euro, and most economists and market analysts expected that the European Union would find a way to stop it. But pledges of support had been vague until now.

“We hope that it will not have to be activated,” said the European Union’s president Herman Van Rompuy. “This would be triggered as a last resort.” He said the program should tell markets to “have confidence that the eurozone will never abandon Greece.”

Luxembourg’s prime minister Jean-Claude Juncker, who heads the group of eurozone finance ministers, said “speculators will be discouraged because they know from now on we have this instrument.”

Greek government officials say they believe the existence of a eurozone safety net will help them borrow at lower costs. They expect the spreads to fall significantly in coming weeks.

“We hope and believe that we won’t ever use it,” a Greek source said under condition of anonymity because he was not authorized to be quoted in the news media.

French President Nicolas Sarkozy said eurozone nations would offer loans totaling some two-thirds of the package with the IMF offering the last third. “We didn’t count up to the last euro,” he said. “It can be adjusted.”

Juncker said they did not agree an amount of a possible bailout for Greece. Two diplomats earlier said the total loans would be some euro22 billion. All eurozone nations are pledging to help — although any contribution would be voluntary.

Eurozone nations also want to take steps to prevent debt and deficits getting out of control again, calling for tougher rules and sanctions. Van Rompuy said they “want all necessary measures to be taken to ensure that this does not recur.”

He has been tasked with drawing up possible options to toughen EU oversight of member’s budgets and economic performance.

The bailout program could be used to help other vulnerable eurozone nations such as Portugal and Spain who have seen debt soar after the global economic turmoil of the past several years saw their economies sink into recession.

The Washington D.C.-based lender has already joined the EU in bailing out and demanding budget cuts from three EU members that don’t use the euro: Hungary, Latvia and Romania.

European and U.S. stock markets rose earlier Thursday on news that a financial rescue package for Greece was taking shape. Market worries over Europe’s weeks-long hesitation to set up a safety net for eurozone members who can’t pay their bills has sent the euro sliding to a 10-month low.

Greece needs to borrow some euro54 billion this year and must refinance some euro20 billion in April and May. It has been able to sell bonds but says it cannot keep paying the high interest rates investors have been demanding to compensate them for the perceived risk that Greece might not pay.

Germany’s Merkel was not sympathetic, saying financial rescue could only come in an “exceptional emergency.”

Germany sees itself as a fierce defender of prudent budget spending and is unwilling to use its taxpayer money to help Greece, which overspent and faked budget figures for years. Merkel also faces a key regional election May 9 which could damage her center-right government by overturning its majority in Germany’s upper house of parliament.

Associated Press writers Raf Casert, Elena Becatoros, Deborah Seward, Gretchen Mahan and Robert Wielaard in Brussels, Kirsten Grieshaber in Berlin and Carlo Piovano in London contributed to this story.