Rescue package for Greece approved
Friday, March 26, 2010
European leaders on Thursday approved a rescue package for Greece that would combine the promise of loans from Europe with assistance from the International Monetary Fund, a hybrid arrangement that could put part of Europe's common currency zone under the global agency's strictures for the first time.
The arrangement represents a compromise between German officials, who did not want to bail out Greece without IMF oversight of the country's spending and budget policies, and other officials from European nations, who worried about an IMF role in the eurozone and hoped to solve the crisis themselves.
The agreement would not extend any funds right away, but would promise European and IMF support if Greece were unable on its own to raise the money it needs to keep operating as it restructures its public spending and economy.
"We have solved this in the European family, with the participation of the IMF. It is the right solution to face an exceptional problem in one of our member states," José Manuel Barroso, president of the European Commission, said in announcing the deal after a meeting in Brussels.
Greece's problems have driven down the value of the euro in recent weeks and raised concerns that a round of crises related to government debt could derail a tentative global economic recovery. Debate over how the European community should respond -- particularly the 16 nations that share the euro -- has triggered intense debate about the success of ongoing efforts to build a common European economy and political union out of a group of disparate nations.
The agreement struck on Thursday leaves that underlying tension unresolved -- committing the 16 nations to helping a neighbor with the type of cooperative methods advocated by nations such as France, but also bringing the IMF into the eurozone for the first time in a step that could erode perceptions of the euro as a global currency. Though European officials said the "lion's share" of any actual lending would come from European sources, disbursement would have to be unanimously approved by eurozone members -- giving Germany or any other country a veto. As part of the agreement, the governments also agreed to set up stricter rules for eurozone members to try to prevent similar problems in the future.
"This is a political text giving a political signal" that the eurozone members will stand behind Greece, said European Council President Herman Van Rompuy.
IMF officials would not comment publicly because they have not yet been asked by Greece for formal assistance. An IMF team has been consulting with the Greek government for several weeks, but the agency only begins formal work on an assistance plan after a country asks for help.
There was no mention of how much aid might be available. The country had initially characterized IMF help as a last resort, but wire services in Europe quoted Greek officials on Thursday night as saying they found the hybrid approach acceptable.
Greece needs to borrow more than $70 billion this year, and still holds out some chance it will be able to raise the money without tapping the emergency fund. The hope is that the existence of the fund will reassure markets that the government can repay, and allow Greece to borrow at rates its leaders find acceptable -- lowering the steep premium the country currently pays compared with other eurozone nations.
An IMF role in Greece would not be the first time the fund has helped a member of the larger European Union. The agency contributed $12 billion to Hungary in 2008 as part of an aid package that also included $6 billion from inside the European Union.
But it would mark the fund's first aid to one of the eurozone countries, crossing a psychological barrier into one of the world's major currencies and offering further proof of how the recent crisis is reordering the global economy.
There were deep misgivings, including over whether IMF involvement in the eurozone would weaken the currency's standing.
"An IMF-led solution . . . is hugely damaging for the euro's prestige as an alternative global currency," Jan Randolph, head of sovereign risk analysis at IHS Global Insight, wrote in a research note. "Eyebrows will be raised in Washington and Beijing. Why can't the eurozone solve its own problems and have to tap into a global fund, the IMF, that should be reserved for much weaker and poorer countries?"