We won’t need emergency loans, says Greek leader

Prime minister welcomes deal reached by the 16 countries of the eurozone.

George Papandreou, Greece’s prime minister, said today that he was confident his government would not have to make use of a European Union plan for emergency loans to help it out of its €300 billion debt crisis.

Papandreou welcomed a deal reached by the 16 countries of the eurozone last night which would allow Greece to ask for bilateral loans from eurozone member states and the International Monetary Fund.

The plan could offer around €15 billion covered by “voluntary” loans provided by eurozone member states and €10 billion from the IMF.

Greece would be able to apply for aid only if it exhausts all efforts to raise money on the bond markets. Part of the deal also gives eurozone member states the right to block aid to Greece if it deems that the aid is not needed.

“We do hope and believe we will never need to use this mechanism, but the fact that it is there is a very positive signal,” said Papandreou, adding that Greece’s credibility had been restored.

“I think capital markets have started to react; it’s a strong mechanism,” he said.

Papandreou said the creation of the blueprint should be effective in dampening down market speculation and allowing his country to get on with its three-year budget austerity plan to rein in its massive deficit and debt.

The Greek financial crisis had brought into question the stability of the euro, causing alarm in other eurozone countries.

“Europe is there in any case and this will allow us in a very calm and organised fashion to implement our programme,” said Papandreou. “No other measures are needed. What is needed is implementation and that is what we are doing and we are doing so in a determined manner”.

The Greek premier said his government’s austerity measures, which include tax hikes, public sector wage-cuts and a crackdown on tax dodgers, “are ahead of schedule”.

“We had a deficit of one billion [euros] in the last two months, while last year, for the same period, the deficit was four billion, so that is a huge reduction in our budget deficit; that is a very positive trend,” said Papandreou.

He refused to say when his government would try to return to the markets to issue new bonds to raise capital. But Papandreou added that his government would organise a special investors’ conference which he said would be aimed at attracting not only European but also other investors, including those from China, to Athens in the coming months to jumpstart economic growth.

While other EU leaders voiced relief that a deal had been reached, the euro strengthened on the foreign exchange markets.

“I now hope that the financial markets act on fact not fiction,” said José Manuel Barroso, president of the European Commission.

“Stability in Greece as a member of the eurozone is just as important for Ireland as it is for any country in the euro area,” said Brian Cowen, Ireland’s prime minister, who is struggling with implementing his own austerity measures.

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Angela Merkel, Germany’s chancellor, who was initially opposed to a European aid plan for Greece, said the deal on offer “makes clear that eurozone countries do not allow the euro to be destabilised”.

The German leader had initially called on Greece to seek help from the IMF, amid strong opposition to German taxpayers’ money being used to bail out Greece. That suggestion was opposed by France and Spain, which wanted the Eurogroup to handle any aid to Greece.

As a compromise the IMF was included in the bail-out plan, in combination with bilateral loans from other eurozone countries.

“Europe is not able to solve such a problem alone,” Merkel said. She pointed out that the IMF had more experience in dealing with countries in financial crisis than the European Commission. “I remember Hungary and Latvia. We have an experienced international organisation,” she said, referring to IMF assistance to the two EU member states in 2009. “The Commission does not have such experience with deficit countries.” 

Merkel said Greece could borrow funds from eurozone countries at market rates, with no discounts. She said she was glad that spreads, the difference between the cost of borrowing between the German and Greek governments, were narrowing.