BRUSSELS (AP) — A hard-won deal to provide a safety net for Greece provided the debt-ridden country with some welcome relief Friday, with its cost of borrowing on international markets edging down slightly and labor unions at home saying they would hold off on any further strikes — at least for now.
Prime Minister George Papandreou said that while Greece still faced problems, the new plan would give it breathing space to implement his Socialist government’s harsh austerity program, designed to reduce its massive budget deficit and pull Greece out of a financial crisis that has rocked the European Union’s common currency.
Greece’s 12.7 percent deficit for 2009 is four times over the EU limit, pointing to the euro zone’s inability to restrict members’ debt and deficits. Worries of a Greek default also highlighted the lack of a European only safety net for euro zone countries that can’t pay their bills.
“Europe and Greece come out of this crisis much stronger,” Papandreou said. “We know we’re not yet out of the woods. We are on a track of implementing our (austerity plan) and we’re determined to do so. But we have shown... that we have a strong will to take tough, indeed unprecedented measures, to react swiftly to the difficult circumstances.”
The plan agreed on Thursday by the 16 euro zone countries would provide individual loans from other euro zone countries and funding from the International Monetary Fund, in order to rescue Greece if the country found itself unable to borrow or pay its debts.
However, the short text outlining the rescue package — which is short on details — specifies it can only be used as a last resort, and requires unanimous agreement of all euro-zone members.
The agreement was reached after months of European wrangling, notably between Germany, which strongly opposed having to pay to bail out a country that had been overspending for years and consistently falsified its financial statistics, and France, which argued that a euro-zone member should be supported and could not be allowed to sink.
Papandreou insisted he did not believe he would ever have to ask for a rescue.
“We do hope and we believe we will never need to use this mechanism, but the fact that it is there is a very positive signal. Europe is backing us,” he said, adding that the plan’s existence “will allow us in a very calm and organized fashion to implement our program.”
The day after the announcement, the euro recovered from a 10-month low against the US dollar, to $1.3374 in midday trading in Europe from below $1.33 on Thursday. The interest rate gap, or spread, between Greek 10-year bonds and equivalent German issues — a key indicator of market trust — narrowed to 305 basis points from about 330 Thursday. The narrower the spread, the more confidence markets are showing in Greece.
Although the level still translates to roughly twice Germany’s borrowing rate, Athens hopes the bailout plan will reassure markets and eventually lower its cost of borrowing.