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Germany, France unite on IMF rescue for Greece

AFP · 26 Mar 2010, 08:04

Published: 26 Mar 2010 08:04 GMT+01:00

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After bloated Athens debts dragged the currency's value to a 10-month low, French President Nicolas Sarkozy and German Chancellor Angela Merkel agreed, just before a European Union summit opened, to bring in the International Monetary Fund alongside bilateral loans.

That would mark an unprecedented move since the euro was introduced in 1999, for while the IMF has helped EU countries such as Hungary, it has never been involved in planning a financial rescue for a eurozone nation.

According to the German government, the deal, still to be approved by the remaining eurozone and EU partners, will mean a "substantial" component of IMF money being pumped in to fix a €300-billion black hole in Athens' finances.

A credit-rating downgrade for Portugal - plus ongoing concerns over Ireland and Spain's swollen public deficits - has further increased the urgency to act, while commentators have spoken of the EU’s worst crisis in a generation.

The euro picked up as hopes rose for an agreement, climbing to $1.3352 in late trade in London, having earlier fallen to $1.3283, with Europe's main stocks also improving.

For the French, the split in the contribution would be of the order of "two-to-one" in favour of European states.

However, the text of the accord makes it clear that interest rates for eurozone loans will "not contain any subsidy element."

A European source nevertheless admitted that participation could only rely on principles of solidarity and persuasion, because "you can't force anyone" to contribute.

Interviewed by French television before the news was confirmed, the head of the European Central Bank, Jean-Claude Trichet, warned that "any sign of a lack of responsibility" for the eurozone is "obviously very, very bad."

In another departure, the agreement also envisages new sanctions against future wayward eurozone spenders.

According to the French, Sarkozy and Merkel agreed to call for new rules representing "economic government" across the eurozone and which would involve strengthening risk-prevention.

A paper agreement laid out "very precise conditions" under which eurozone countries "could be led to intervene," the Elysee palace added.

Merkel reiterated her belief that a "modification" to EU treaty provisions would be required - something that is vehemently opposed by Britain.

Other EU leaders were seen smiling as they received details of the plans from Merkel, Sarkozy and EU president Herman Van Rompuy on their arrival in the Brussels summit chamber.

The deal was reached after Merkel warned that she would never abuse the "trust" of the German people, a majority of whom opposed granting direct aid according to opinion polls.

Story continues below…

Merkel has been compared in her country to former British Prime Minister Margaret Thatcher for insisting on an IMF component in the face of rising Greek anger at the sluggish emergence of concrete European expressions of solidarity.

Athens had accused German banks of profiteering from inflated interest rates on Greek government bonds, and German industry - the world's second-biggest export economy - of cashing in on Greece's woes by selling goods more cheaply abroad.

Athens has been paying interest rates above six percent, more than double what Germany pays, and had asked for an EU deal to be able to borrow on more affordable terms.

Tens of billions of euros are required to repay maturing Greek debt over the next couple of months.

In a separate boost for Athens, Trichet's ECB made it easier for struggling Greek banks to raise money by keeping loan collateral levels unchanged into 2011.

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Your comments about this article

08:36 March 26, 2010 by E-Roc
For a more detailed and complete analysis on Germany and in particular the Euro see http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2010/03/25/germany-mitteleuropa-redux.aspx
11:20 March 26, 2010 by dcgi
I was hoping the weakening euro was going to manifest in a stronger pound, unfortunately the exchange rates are just as bad as they were weeks ago :(
17:48 March 26, 2010 by peschvogel
The Euro is going down further. I would bet the farm on this trade.
09:32 March 27, 2010 by William Thirteen
and your favorite sheep?
15:38 March 27, 2010 by Prufrock2010

What about all your iron-clad assurances that the IMF was constitutionally prevented from intervening? Why should anyone take anything you write seriously? Forgive me, that was a rhetorical question.

BTW, the euro is significantly overvalued. If Germany wants to regain its export position, the euro will have to decline a bit more so that people can afford to buy German products again.

As for Greece, that is a hopeless situation regardless of this or any other deal. This rescue isn't about Greece; it's about saving the euro from extinction.
17:02 March 27, 2010 by peschvogel

"This rescue isn't about Greece; it's about saving the euro from extinction."

No monetary union has ever survived. If the EU needs the IMF for a small itsy bitsy 2.5% of gdp problem, then what happens when a real problem surfaces. The IMF for a developed European nation? Are you serious? This is a victory? Look at the markets after this package was announced. What happened? Sell, sell, sell. Look at the techincal analysis you ninny. The trend line is going down, down, down, with no retrenchment. You are certainly not in banking nor finance. Spain & Portugal are very delighted that their is money for them as well. Greece will get this amt in April.
18:25 March 27, 2010 by Prufrock2010
I never said this was a victory, blackbird. I said it is a strategy to save the euro, not Greece.

Now let's revisit your previous insistence that the IMF was precluded from intervening, shall we? How did that assertion work out for you? Or do you now deny saying it over and over again? You can't keep a story straight for 10 minutes.
01:12 March 28, 2010 by peschvogel
Actually, lets focus on the "No bailout" clause by the Maastericht Agreement. What will you call it in April? A Greek Ostern "Easter" gift....Schade....Or in June you can call the money Spain needs "Saludos" or Portugal "Festivo de Juno"....Too much fun with all the free taxmoney leaving Germany...Schade...
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