Eurozone Agrees to Greek Rescue Deal

Eurozone leaders on Thursday night agreed a rescue package for Greece including assistance from the International Monetary Fund as well as bilateral loans from fellow euro-member states., Financial Times 3/26/2010 10:56:38 AM

The agreement followed a breakthrough earlier in the day between France and Germany on the principles of a rescue.

Under the accord reached between President Nicolas Sarkozy and Chancellor Angela Merkel, Athens would, in the event of very serious difficulties”, receive co-ordinated bilateral loans from its eurozone partners as well as IMF assistance, which France had previously resisted.

Mr Van Rompuy said it would be a joint mechanism between eurozone members states and the IMF. Mr Sarkozy said the proportion of funding would be one-third IMF and two-thirds eurozone.

Jean-Claude Trichet, president of the European Central Bank, who had expressed doubts about IMF involvement, said he was entirely content” with the deal, which he said preserved the responsibilities of European governments.

The deal pulled the eurozone back from the brink of what would have been a damaging row over how to help members with debt difficulties and may help stabilise financial markets and the currency.

The aid would be subject to assessments carried out by the ECB and the European Commission, ensuring that the European Union retained control of the rescue terms.

However, Berlin won agreement that the IMF contribution would be substantial”.

Any decision by the eurozone countries to lend money to Greece would have to be unanimous, according to the text of the agreement, thus in effect giving Germany a veto.

The Franco-German agreement was presented to the other 14 eurozone leaders gathered in Brussels for an EU summit.

If the rescue plan is triggered, eurozone members would provide loans according to their capital shares in the ECB, ensuring that Germany would make the largest contribution.

The ECB announced that it was abandoning plans to raise its minimum collateral requirements at the end of this year. The unexpected move relieved some pressure on Greece, which could have seen its bonds excluded from ECB liquidity-providing operations if the country’s credit ratings were downgraded further.