EUROZONE leaders last night finally clinched a deal to secure Greece’s financial future with the IMF drafted in alongside the EU to provide emergency funds if the debt-stricken country needs it.
The bailout plan, agreed at yesterday’s EU summit in Brussels after weeks of wrangling, means eurozone members will provide two thirds of the estimated €20-22bn funding required, with the IMF providing the remaining third if Greece cannot raise them on capital markets. If the rescue plan is triggered, eurozone members would provide loans according to their capital shares in the European Central Bank, ensuring that Germany would make the largest contribution.
The decision to bring in the Washington-based IMF fund is controversial due to fears its involvement could undermine the EU’s independence. European Central Bank chief Jean-Claude Trichet yesterday slammed the move, saying the IMF’s role in Greece is “very, very bad” because it means European countries are shying away from their responsibilities.
But German chancellor Angela Merkel, who has led the push for an IMF role in any bailout due to fears direct eurozone assistance could expose her to legal challenges at home, last night insisted that the EU would retain control of any rescue. She said the aid package would be subject to assessments carried out by the European Central Bank and the European Commission. Merkel also sought to reassure on the terms of any help, saying that a bailout would need to be considered a “last resort”. She said any loans made available would be at market rates, and would not involve a subsidy.
European leaders hope the deal will be sufficient to reassure credit markets and halt traders betting on a Greek sovereign debt default.
The cost of insuring Greek debt against default fell on news of the agreement yesterday, and the premium investors charge for holding Greek bonds rather than benchmark German bunds narrowed. But it still remained more than double the spread charged on fellow eurozone weaklings Ireland and Portugal, and four times that of Spain.
Markets also jumped on the news of a deal, with the FTSEurofirst 300 index of top European shares ending 1.01 per cent higher at 1,083.34 points, the highest close since early October 2008. But the euro plunged, falling 0.2 per cent to $1.3286 – a 10-month low – as Trichet’s criticism took its toll on the single currency.