THE RESCUE deal for Greece agreed by euro-zone finance ministers will not breach the European treaties’ “no bailout” clause, as the debts will have to be repaid and are not a subsidy, their council’s chairman said yesterday.
The ministers approved a giant €30-billion emergency aid mechanism for the debt-plagued country, but stressed that its government had not yet requested the plan to be activated.
The deal is aimed at aiding Greece’s efforts to deal with its €300 billion debt, which far outstrips its €240 billion annual output by about 18 per cent.
“If the mechanism had to be activated, it would not be a violation of the no-bailout clause [in the European Union treaty] since the loans are repayable and contain no element of subsidy,” Luxembourg’s Jean-Claude Juncker, chairman of the Eurogroup of finance ministers, told a Brussels news conference.
European Economic and Monetary Affairs Commissioner Olli Rehn said the three-year euro-zone loans would carry an interest rate of about 5 per cent – well below current market rates of about 7.3 per cent. This meets Greece’s call to be able to borrow at rates closer to its peers in the currency area.
The package, added to at least €10 billion expected from the International Monetary Fund (IMF) in the first year, could add up to the biggest multilateral financial rescue ever attempted.
A Greek finance ministry official said it was logical to expect that the package would amount to €80 billion over three years, dwarfing past IMF bailouts for Mexico and Argentina.
Under the terms of the deal, all countries using the euro and the IMF will loan Greece the money. Euro zone member states will contribute to the loans according to their respective holdings in the European Central Bank (ECB) capital.
The euro zone would provide two-thirds of all loans requested by Greece and the IMF will supply the remaining one-third. The programme will run over three years.
Minister for Finance Brian Lenihan, who took part in the meeting, said the Republic would have to pass legislation in order to contribute its share of the loan.
The deal calls for €30 billion from the euro zone in the first year. The IMF could lend Greece up to 10-to-12 times its IMF quota of $1.25 billion, which would mean $12.5 billion to $15 billion (€11.1 billion).
Mr Lenihan and his 15 euro-zone colleagues agreed the deal during a telephone conference yesterday afternoon. The financial markets’ scepticism over Greece’s ability to manage its €300 billion debts prompted the ministers to act.
Investors dumped Greek stocks and bonds, and ratings agency Fitch downgraded Athens’ debt by two notches on Friday to BBB-, ranking the country’s debts as just above junk bonds. – (Additional reporting: Reuters)
