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European countries offer $41 billion to Greece

Eurozone members hope to calm investors and protect their currency by making below-market-rate loans available to the debt-ridden country. The euro rises on the news.

April 12, 2010|By Henry Chu
  • The International Monetary Fund stands ready to chip in an additional $14 billion, said Olli Rehn, the EU monetary affairs chief.
The International Monetary Fund stands ready to chip in an additional $14… (Julien Warnand / EPA )

Reporting from London — European finance officials agreed Sunday to make about $41 billion in loans available to Greece to help the Mediterranean nation stave off the threat of a debt default.

The loans would be charged at below-market rates to enable Athens to keep its borrowing costs down as it struggles to raise money to finance its runaway public debt. Global markets have punished Greece in recent days with high interest rates, reflecting widespread anxiety over Athens' creditworthiness.

The Greek government continues to insist that it will not need to resort to assistance from fellow European countries or the International Monetary Fund to stay afloat. But Athens has called on its neighbors to show their willingness to extend a hand if necessary, to calm jittery investors and thwart speculators betting on a default.

On Sunday, finance ministers from the Eurozone, comprising the 16 nations that use the euro currency, held an emergency videoconference to discuss the potential loan package, ahead of the markets reopening Monday.

They announced that, if need be, they would make the $41 billion available at interest rates of about 5%, lower than what Athens could find in the marketplace. The IMF would chip in an additional $14 billion, officials said.

The agreement fleshes out a pledge that the Eurozone made last month to help Greece, but one that gave no specific amounts and failed to satisfy nervous financial markets.

Late last week, investors were demanding interest rates as high as 7.34% on one-year Greek bonds, the highest in more than a decade and up from 4.35% at the start of the week.

The aid package "is a clear and strong commitment," Jose Manuel Barroso, president of the European Commission, said in a statement. "It shows that the euro area is serious in doing what is necessary to secure financial stability and about its commitment to give support to Greece."

In an encouraging sign, the battered euro rallied in overseas trading early Monday, rising to $1.364 from $1.35 on Friday. The currency had fallen as low as $1.327 in recent weeks.

Sealing an aid deal for Greece has been hindered by objections from Germany, Europe's biggest economy and a Eurozone member, which is worried that a rescue package would set the wrong precedent.

German public opinion runs strongly against bailing out Greece, whose government shocked international investors in October when it revealed a budget deficit exceeding 12% of gross domestic product, far greater than what is allowed under Eurozone rules. Many Germans believe that they should not have to pay for Athens' mistakes.

But with the stability of the euro at stake, as well as pride in having forged a common currency, European finance officials have come to acknowledge the necessity of helping out one of their own.

While welcoming Sunday's announcement, Athens said it can solve its problems without outside assistance. The Greek government has proposed a multibillion-dollar austerity package that it says will help bring down its deficit by several percentage points this year.

henry.chu@latimes.com

Times staff writer Tom Petruno in Los Angeles contributed to this report.

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