EU and IMF agree to give Greece 109 billion euros

Leaders of the EU member states, together with the IMF, have come to agreement on the allocation of 109 billion euros to help Greece out of the financial crisis that might put the very existence of the euro under question.

­It is also expected that banks and private investors will add some 40 billion euros to that sum within the next three years.

The decision was made late in the evening on Thursday at an urgent summit in Brussels, and before being ratified must pass approval by the EU parliament.

Greek Prime Minister Georgios A. Papandreou attended summit and, as expected, greeted the decision.

The accord to allocate billions more to stabilize the lamentable economic situation in Greece only became possible once the country introduced an anti-crisis package, including cuts in budget expenditures totaling 14.32 billion euros, raising taxes by 14.09 billion euros and finding other savings totaling 28 billion euros within the next five years.

It is the second bailout of Greece. It follows a 110-billion-euro loan given to Greece in 2010, which proved to be insufficient to solve Greece’s financial problems and pull the country, with its nearly 350 billion euros of sovereign debt, out of the deadlock.

However, French President Nikolas Sarkozy warned that this model would not be repeated for other struggling eurozone economies.

What we are doing for Greece in terms of (debt) sustainability, we will not do for any other country of the eurozone,” Sarkozy said. “We are saying this loud and clear: Greece is a specific case and this is a significant political decision.

The gathering has also ruled that the EU should reduce reliance on external credit ratings, taking into account the recent moves by Moody’s and other US agencies, which downgraded the sovereign debts of the EU countries hit by the financial crisis. The EU Commission has been assigned to make concrete proposals on the issue.

On the eve of the summit, euro ratings started climbing upwards in anticipation of fresh anti-crisis measures. European markets saw an increase in euro ratings by as much as 1.12 percent.

The measures discussed at the summit will also include help to other ailing EU economies, like extending the average maturities not only for Greece, but Portugal and Ireland’s official loans as well to 15 years from original 7.5 years, at an interest rate of 3.5 percent, which is a 1 percent decrease from the previous 4.5 percent.

Nevertheless, says MEP Paul Nuttal from the UK Independence Party, despite the rising hopes the only solution for Greece is to leave the eurozone.

“What Greece needs to do is it needs to come out of the euro,” he said. “It needs to be able to devalue its own currency. It needs to be able to set its own exchange rates and it needs to get its economy moving.”

“Let us look at the last example of a major country which defaulted, which was Argentina,” Nuttal added. “It defaulted in 2001. From 2002 to 2006 its economy grew by 65 percent, so default for Greece would not be the end of the world.”

­Greece bailout will prolong the agony – economic journalist

­European banks will contribute over 100 billion euros over three decades to bail out the Greek economy, however the threat remains that the country may still partially default.

It comes after an emergency summit of EU leaders in Brussels, where they agreed to a second rescue plan. They also claim it is a more beneficial deal for Greece than the first financial salvage operation.

Some observers disputed that claim.

The EU lacks leadership, said economic journalist Patrick Young, and the “press conference” in Brussels “has only demonstrated in what shambles this proceeding is.”

Young, who attended the media conference, said the assembled leaders were telling the public  “who is actually in charge and what is going on.”

“What the EU is really trying to do is, they are trying to suppress the blood – the money – that is flowing out of the Greek economy… and they are terrified to take it straight from their own taxpayers’ coffers, so instead they are taking them from the banks, which is indirectly taking them from their own electorates,” Young stated.

The EU’s attempts to go back in time and renegotiate its debt obligations contract is forcing creditors not to take back money for a quite a long period of time, he added.

“In the world of finance, they regard that as being in default, because obviously if you do not pay your loan when your loan is due, then to some degree or another you are in default,” Young said.

The euro may not be in its final death throes, Young declared, but there is a danger of the economic troubles spreading to Ireland, Portugal and even Italy and Spain.

The plan to save Greece, Young concluded, looks like little more than hollow words, and “unfortunately hollow words do not inspire confidence in markets.”

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