Heavily indebted Greece won a major pledge of financial support from the other countries that use the euro and the IMF in a deal that aims to halt the government debt crisis undermining Europe’s currency union.
The joint eurozone and IMF bailout program comes with strict conditions, making no money available to Greece right now. It could be tapped only if Greece — or other financially troubled eurozone members — cannot raise funds from financial markets and would require the unanimous agreement of the 16 eurozone countries to release the loan funds.
The agreement at a Thursday meeting of EU leaders was a clear victory for German Chancellor Angela Merkel, who demanded that a rescue for Greece only come when the country runs out of other options. She also insisted that any backstop must include the IMF.
It was also a comedown for the French and the European Central Bank (ECB), which had opposed turning to the IMF out of fear it would damage the euro’s prestige and show that Europe was unable to solve its own financial woes. The eurozone has never turned to the IMF.
ECB President Jean-Claude Trichet said he had wanted a program that emphasized governments’ “maximum responsibility” to limit debt, praising the program as a “workable solution” that would “normally not need to be activated.”
He said Greece should now “progressively regain the confidence of the market” and be able to borrow at lower interest rates.
Trichet said that he assumes markets will end recent volatility.
“That’s my working assumption,” he said.
The new plan sets up a possible rescue program for the first time. All eurozone nations are pledging to help — although any contribution would be voluntary.
“We hope that it will not have to be activated,” European Council President Herman Van Rompuy said. “This would be triggered as a last resort.”
He said the program should tell markets to “have confidence that the eurozone will never abandon Greece.”
Greek government officials say they believe the existence of a eurozone safety net will help them borrow at lower costs. They expect spreads to fall significantly in coming weeks.
“We hope and believe that we won’t ever use it,” a Greek official said on condition of anonymity.
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