Page last updated at 13:21 GMT, Friday, 26 March 2010

Merkel praises eurozone deal to help Greece

European Commission President: "I now hope financial markets will act on fact not fiction"

Germany's Chancellor Angela Merkel has voiced satisfaction with a deal to help debt-laden Greece, which appears to have strengthened the euro.

The euro rose by more than half a cent to $1.3364. Against the pound, it rose almost half a penny to 90.210p.

Mrs Merkel said the safety net for Greece showed "Europe's capability to handle things" and "did something for the stability of the euro".

The eurozone and IMF will lend to Greece if it cannot get market loans.

All 16 eurozone countries backed the plan to help Greece.

The safety net would total up to 22bn euros (£20bn), but would only be used as a "last resort".

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Eurozone nations would grant co-ordinated bilateral loans, totalling some two-thirds of the funding, French President Nicolas Sarkozy said.

The commitment to help Greece could prevent its budget crisis sapping market confidence in the euro and ease fears of contagion in the eurozone.

The single currency hit a 10-month low against the dollar on Wednesday after a credit downgrade for Portugal, which is also struggling with heavy debts.

UK Prime Minister Gordon Brown said there would be no UK contribution to the safety net.

"I can reassure people in the UK that we are not contributing directly to this and that none of these arrangements will see any powers being ceded from Britain to the EU."

The plan was worked out at an EU summit in Brussels. Greek Prime Minister George Papandreou called it "a very satisfactory" move.

Jonny Dymond
Jonny Dymond, BBC News, Brussels
There is no bail-out but a bail-out mechanism is in place; the 16 eurozone countries have agreed to it. All it needs now is the nod from the rest of the 27-member EU.

Late on Thursday night there was some alarm from Britain and others about a reference to "economic government" by the European Council.

That's been watered down to economic governance, something more anodyne and thus acceptable.

The involvement of the International Monetary Fund in any future bail-out is a rebuff to the French, but it was a condition of the Germans playing ball. German Chancellor Angela Merkel has got pretty much everything she wanted.

European Commission President Jose Manuel Barroso said he was "extremely happy that we've reached this deal", calling it "a right decision".

"I now hope that financial markets act on fact, not on fiction."

'Last resort'

The joint eurozone and International Monetary Fund bail-out programme envisages strict conditions and requires the unanimous agreement of the 16 eurozone nations to release loans.

The agreement included no numbers, but officials in Brussels - speaking on condition of anonymity - said the total package would be some 22bn euros.

A draft of the plan, seen by the BBC, says the Greek government "has not requested any financial support", so "no decision has been taken to activate" the mechanism yet.

The eurozone had previously avoided seeking an IMF loan for Greece, preferring a European solution and anxious to maintain global confidence in the euro.

Chancellor Merkel has signalled reluctance to offer Greece anything resembling a bail-out, which is not allowed under the single currency rules.

Austerity drive

Greece has enacted unpopular measures to curb its deficit, including a freeze on public sector wages, pension reforms and increases in fuel taxes.

If Greece cannot borrow from markets the eurozone countries and IMF will provide loans totalling about 22bn euros (£20bn)
IMF will provide one-third of the loans, eurozone the rest
Mechanism is a "last resort" to bail out Greece
Decision to give loans will be based on assessment by European Commission and European Central Bank

It is also having to refinance its debt. Because of doubts over its ability to pay, it is having to pay interest at about 6% - around double what Germany has to pay.

Mrs Merkel said she would press for the EU to amend its treaties to strengthen its ability to prevent future budget crises.

Stressing the need to learn lessons from the crisis, she wants a treaty change to allow sanctions to come into force should a eurozone country ever default on its debts.

Greece's woes have exposed fundamental disagreements about how the 11-year-old euro project should work, the BBC's Europe business reporter Nigel Cassidy says. The eurozone's governance will have to be re-examined, he adds.

EU members Hungary, Latvia and Romania have received emergency loans from the IMF and EU as their budgets have been hit hard by the global economic downturn. But, unlike Greece, they are not in the eurozone.

German taxpayers are fiercely opposed to bailing out Greece, which is burdened by debt of nearly 300bn euros (£267bn, $407bn) and a public deficit of 12.7% of GDP - more than four times the official eurozone limit.

EU debt figures - graph

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