THE EURO rebounded and investors rushed to buy Greek stocks yesterday as senior euro zone officials meeting in Brussels said that they had agreed the terms on which Athens could draw on emergency loans to help ease its debt crisis.
Officials from euro zone members said that, under proposals yet to be signed off by political leaders, emergency funds made available to Greece would have to be repaid at a pre-agreed interest rate that helped Athens without amounting to a clear subsidy.
The moves in Brussels came after George Papandreou, the Greek prime minister, changed position on Thursday night and asked for the euro zone rescue package, which would involve the IMF, to be finalised as soon as possible, diplomatic sources said.
The Greek prime minister called José Luis Rodriguez Zapatero, his Spanish counterpart and current holder of the European Union’s rotating presidency, to make the request. But he stopped short of asking for the package to be activated, a senior Greek official said.
Mr Zapatero told reporters: “We do need to issue a clear message to the markets and the message cannot contain any element of uncertainty or lack of clarity.
“I think that right now in these coming days we have to rebuild and re-establish and remind everyone that there is a standing agreement whereby the countries of the euro zone will back if necessary and will bail out Greece if necessary, with the support of the IMF.”
His comments followed Thursday’s sharp sell-off in Greek government bonds – which pushed up the country’s cost of borrowing to its highest since 1998 – and big falls in the share prices of the country’s banks.
Reports of a deal in Brussels sent Greek shares sharply higher yesterday and investors shrugged off a downgrade of the country’s credit rating by Fitch.
Bonds rallied, too, and 10-year borrowing costs eased from more than 7.5 per cent.
The euro rose 0.75 per cent to $1.3471.
Germany has insisted that any loans to Greece should be made on the basis of “market rates” to avoid any form of subsidy that is against euro zone rules.
Angela Merkel, German chancellor, is worried that any sign that taxpayers’ money is being used to prop up Greece could lead to legal challenges.
Officials said that Germany was sticking to its demand that the euro zone portion of the loans would have to be made at or near Greek market rates of 6 per cent or more, although this could lead to different rates being charged by other countries.
One said that the agreement “reflects high rates . . . it is not a ‘subsidy’ and thus not a climbdown. Not even the Germans regard most recent rates as market rates”.
The German finance ministry declined to comment on the rescue talks.
Any proposals thrashed out by officials in Brussels would need the agreement of the euro zone's political leaders. – (Copyright The Financial TimesLimited 2010)
