Sun, Apr 11, 2010 - Page 11 News List

EU leaders back Greece’s rate requests

RESCUE SCHEMEThe EU stands ready to bail out Greece with funds at below-market rates, but Fitch Ratings downgraded Greek debt ratings, citing the challenges it faces

AFP , ATHENS

EU leaders backed Greece over its debt crisis on Friday as Brussels agreed to levy interest rates below the market level if Athens is forced to seek emergency EU-IMF action to prevent default.

After several top leaders said the EU would help Greece at any time it asked, eurozone officials set the interest rate Athens would have to pay for rescue funds at below-market rates, a key move in resolving an issue that has rocked Europe for months.

“There is agreement on the interest rate which will be applied for Greece, should it call for an aid plan,” one diplomat in Brussels said on condition of anonymity after talks between the 16 eurozone countries.

A previous deal agreed by EU leaders late last month did not specify the terms under which last-resort assistance from the European bloc, backed by the IMF, would be made available.

“It is lower than the current market rate for Greek debt,” another diplomat said, referring to rates that soared past 7.5 percent on Thursday. “But it’s not gift-wrapped either — it’s [still] higher than that for a country with an AAA rating from international credit rating agencies.”

“That will allow Greece ... if this mechanism is put in place, to re-finance itself at cheaper levels than on today’s market,” the diplomat added.

Amid growing speculation that a rescue deal was in the offing, Greek Prime Minister George Papandreou held talks with several EU leaders late on Friday.

The talks by phone involved EU President Herman Van Rompuy, European Central Bank chief Jean-Claude Trichet, EU Commission head Jose Manuel Barroso and Eurozone finance chief Jean-Claude Juncker, Papandreou’s press office said.

With the news appearing to be going in Greece’s favor, the yield on the benchmark 10-year Greek government bond fell back sharply on Friday to just over 7 percent in late trade.

That is still very high compared with German bonds, for example, but a large improvement and with the prospect that the eurozone accord could see it go lower still if Athens can get cheaper funds from the EU.

Earlier on Friday, Van Rompuy gave Greece his backing, telling journalists from a handful of European newspapers: “The Greek government is courageous and is breaking with the past. We would be ready to intervene if the Greeks ask us to.”

French President Nicolas Sarkozy said the EU was ready to activate its rescue scheme “at any time to come to Greece’s aid,” in remarks after discussions with Italian Prime Minister Silvio Berlusconi.

Germany also said that the EU-IMF rescue scheme could be activated quickly, although government spokesman Michael Offer again stressed that Greece could solve its problem by focusing on budget cutbacks.

However, Fitch Ratings took a hard line, saying it had downgraded Greece’s debt ratings because of the challenge the country faces in managing its public finances.

Fitch said it cut Greece’s long-term foreign and local currency Issuer Default Ratings to BBB- from BBB+.

It also slashed the credit rating of five banks, including National Bank of Greece, which was reduced from BBB to BBB-.

Greece has faced increasing difficulties in raising fresh money on financial markets to cover its obligations and ratings downgrades normally increase a country’s borrowing costs.

Fitch warned that it was “vital that the Greek authorities import credibility from external institutions, underpinned by a credible commitment of financial support.”

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