France and Germany call on eurozone nations to set up bailout program for Greece, others

Eurozone weighs bailout plan for Greece

BRUSSELS — Germany and France urged adoption of a joint eurozone and International Monetary Fund bailout program for Greece, a move aimed at putting a stop to months of market turmoil and acrimony over Europe’s government debt crisis.

The two biggest eurozone countries powers say that any loans for Greece — or other financially troubled euro members — would only come as a last resort, if the country cannot borrow enough from financial markets, according to a draft text seen by the Associated Press.

The proposal was taken up Thursday by the 16 euro countries, meeting at a summit of the full 27-member EU in Brussels.

The euro countries would to vote unanimously to provide individual loans to Greece — but would not be required to contribute.

The text does not promise cheap loans to Greece — which wants to borrow at rates lower than those demanded by bond investors wary of the country’s shaky finances.

The aim would not be to provide credit at average euro area interest rates, but to set rates that reflect a borrowers creditworthiness to give them a reason to return quickly to normal market funding sources.

It does not mention a figure for a potential bailout. Two diplomats speaking on condition of anonymity say the total rescue plan for Greece could total some euro22 billion with the majority coming from European nations and the rest from the IMF.

The European Central Bank’s president Jean-Claude Trichet, earlier an opponent of an IMF rescue for Greece, backs the plan, diplomats said. It says interest rates should “not contain any subsidy element” for Greece, as Trichet demanded earlier this week.

Diplomats were speaking on condition of anonymity because details have not been agreed by all 16 countries.

The plan was an attempt to stem a government debt crisis that has shaken the foundation of Europe’s monetary union. The euro comes with rules intended to keep governments from undermining it by spending too much, but those rules have been ignored by countries and did not stop Greece from getting into trouble.

A Greek default would be a serious blow to the euro — so serious that most economists and market analysts think Europeran governments would step in and stop it somehow, but promises of help have been vague.

European and U.S. stock markets spiked higher Thursday on news that a financial rescue package for Greece was taking shape. Market worries over Europe’s slow moves 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. The euro traded at $1.33, down from $1.51 in November.

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. The Greek drama has fuelled concern the trouble might spread, bringing the borrowing ability of other troubled euro countries such as Spain or Portugal under pressure.

German Chancellor Angela Merkel won her key demand, namely that any aid only come when Greece has exhausted all other options to pay its debts. She told the German parliament that a financial rescue could be justified in an “exceptional emergency” when Greece was unable to borrow from bond markets and the stability of Europe’s currency union was at risk.

She also insisted on IMF involvement. France finally yielded to that, dropping previous opposition to calling in the IMF to help the eurozone handle its problems.

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.

The Washington, D.C.-based international lending agency has already bailed out three European Union members — Hungary, Romania and Latvia — but none use the euro. IMF involvement was resisted by some as a concession that the eurozone was unable to deal with its own problems.

The deal would also commit to “a strong coordination of economic policies in Europe” that would increase joint EU government monitoring of economies across the 27-nation bloc and strengthen the EU’s budget limits on debt and deficit.

“The current situation demonstrates the need to strengthen and complement the existing framework to ensure fiscal sustainability in the eurozone and enhance its capacity to act in times of crisis,” the draft text said.

Merkel said eurozone nations need to learn the right lessons from the financial crisis and toughen sanctions against countries that run budget deficits above the EU maximum of 3 percent of gross domestic product.

She said it would be “disastrous” to abandon these rules.

“There must be an end to cheaters,” she said.

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