The Euro has surged against the US Dollar and Sterling on international financial (forex) markets today after EU finance ministers approved a giant 30bn Euro ($40bn) emergency aid package for Greece yesterday but Athens has not requested the plan to be activated yet. With at least another 10 billion Euros expected from the International Monetary Fund in the first year, it could add up to the biggest multilateral financial rescue ever attempted.
“With today’s decision, Europe sends a very clear message that no one, any longer, can play with our common currency, no one can play with our common fate,” Greece’s Prime Minister George Papandreou said in a statement.
The Euro rose by more than 2 cents, or 1.5%, against the US Dollar, to $1.3672, up from $1.3498 at close of trade on Friday. Against the Pound, it rose by almost 1 penny to GBP 0.8840 in early trading this morning. The Euro has dropped 5.7% against the US Dollar this year as the discord within Europe over the response to the Greek crisis sapped faith in Europe’s economic management.
Pushed into action by a week which saw Greece’s borrowing costs soar to an 11 year high, finance ministers from the 16-nation Euro Zone backed a detailed plan for Greece to borrow from European governments and the IMF at significantly below market rates.
IMF chief, Dominique Strauss-Kahn, said the IMF was ready to provide help, possibly through a multi-year standby loan arrangement, and is set to hold talks with Greek, EU and European Central Bank officials in Brussels later today. “The IMF stands ready to join the effort, including through a multi-year stand-by arrangement, to the extent needed and requested by the Greek authorities,” he said in a statement.
A German government official welcomed the agreement, which he said should enable Greece to do its fiscal “homework” on deficit reduction without market distraction. “It should contribute to a calming of the markets so that Greece can take care of its homework in peace and quiet.”
Greece hopes it will not have to ask for the loans. Instead, it hopes that the weight of the huge aid package, even if held in reserve, will reassure investors and make them more willing to keep buying Greek bonds. A Greek official said the government would decide within a few days whether to ask for the aid, depending on whether market interest rates subside.
European Economic and Monetary Affairs Commissioner Olli Rehn said the 3-year Euro Zone loans would carry an interest rate of about 5% — well below current market rates of about 7.3%. That responds to Greece’s appeal to be able to borrow at rates closer to its peers in the currency area. Greece needs to borrow about 11 billion Euros by the end of May to refinance maturing debt and interest charges. Its overall 2010 borrowing requirement is 53 billion Euros.
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