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Concerns About Euro Remain, Despite Greek 'Bailout' Deal


French President Nicolas Sarkozy talks with German Chancellor Angela Merkel at the start of an EU summit in Brussels on March 25.
(RFE/RL) -- European leaders have hailed an agreement by eurozone countries to help heavily indebted Greece by providing financial support -- along with help from the International Monetary Fund (IMF).

The deal on March 25 is seen as a breakthrough for the 16-country eurozone, whose members have been arguing for weeks about how to deal with the Greek debt crisis, which has been undermining the value of the euro on foreign exchange markets.

The deal does not provide any immediate relief to Athens. Instead, under the insistence of Germany, it is only to become available under the vaguely worded condition of "last resort" -- and if Greece is unable to raise the funds it needs from market financing.

Although the value of the potential support package has not been officially announced, European officials say it could be worth as much as 22 billion euros in an emergency.

Greek Prime Minister George Papandreou praised the action, saying it was a decisive step that protects the European Union's common currency.

"Greece, inside the euro zone, is safe, and Europe has also made a big step," he said. "Today we have not just taken a decision for Greece. Europe and the European Union faced a great challenge and succeeded in facing up to the challenge with decisiveness.

"European leaders protect the European Union, protect our common currency. Europe with Greece will come out from this crisis stronger."

'Hybrid Mechanism'

EU President Herman Van Rompuy said the program should reassure financial markets that eurozone countries will not abandon Greece.

"The lion's share of funding will be European," he said. "So this is a hybrid mechanism but with European dominance."

Greek Prime Minister George Papandreou
Nevertheless, financial analysts say the need to bring the IMF into the loan plan could damage the prestige of the euro on the international markets. That's because the eurozone has never before had to turn to the IMF to help one of its member countries out of a financial crisis.

Indeed, the value of the euro fell to its lowest level in 10 months -- to just under $1.33 this week -- due, in part, to investor concerns that the EU has been unable to handle major problems in the eurozone without IMF involvement.

The European Central Bank and French President Nicolas Sarkozy both had been opposed to bringing the IMF into the deal out of concern that the markets would read the move as a signal that Europe is unable to solve its financial problems on its own.

After agreeing to the German demand for an IMF role, Sarkozy told reporters that the objective is not to use the loan at all. Rather, Sarkozy said, European leaders hope the existence of a support plan would "translate into the normalization of the situation on the markets with regards to Greece."

"This preventative agreement is nevertheless operational. It is precise. It can be activated in case of need and as a last resort," Sarkozy said. "It represents an assurance, for Greece, that it will be able to put in place the courageous reforms it has instituted without being penalized by speculation and the irrational behavior of the markets."

'Regain Confidence'

European Central Bank President Jean Claude Trichet also told journalists in Brussels late on March 25 that he hopes the mere existence of the loan deal will help Greece resolve its crisis -- making it unnecessary for the loan to be used.

"I am confident," he said, "that the mechanism decided today will normally not need being activated and that Greece will progressively regain the confidence of the market."

Greece has been struggling with a crippling budget deficit that is 12.7 percent of the country's economic output. That is more than four times higher than the limit prescribed for members of the euro currency -- a budget deficit no larger than 3 percent of a country's GDP.

Even as agreement was being reached in Brussels on a plan to protect the euro from the fallout of the Greek crisis, concerns have been building about debt crises in other euro zone members -- namely, Portugal, Italy, Spain, and Ireland. Senior Chinese officials have warned that the Greek debt crisis is just the "tip of the iceberg."

In a speech to the German parliament before the March 25 agreement in Brussels, Chancellor Angela Merkel suggested that rules for membership in the eurozone should be changed so that countries that fail to meet the 3 percent deficit target can be kicked out.

An editorial in the German newspaper "Handelsblatt" today said the agreement on the Greek crisis leaves "little hope" that Merkel will be able to persuade other leaders to adopt tougher checks on the deficits of eurozone countries -- or that chronic fiscal sinners can be expelled from the eurozone club.

The "Financial Times Deutschland" agreed, calling the EU's rule book "obsolete" -- and saying "the compromise means the Greek patient is out of danger for the time being, but the undeniable result is that someone else is now in intensive care: the currency union as a whole."

The "Frankfurter Rundschau" said that if the IMF is the solution to the euro zone's woes, "then the European project is finished."

written by Ron Synovitz, with material from wire services