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Greece: 'Nobody can play with euro'

Gavin Hewitt | 00:42 UK time, Monday, 12 April 2010

At the third attempt, the cold hard details of rescuing Greece have been revealed. Over three years, 80bn euros ($108bn; £70bn) can be drawn on.


The eurozone countries are putting in two-thirds, the rest will come from the IMF. That is no small deal. This year the eurozone would make 30bn euros available with a further ten coming from the IMF. If Greece takes the money it will be one of the biggest rescues ever. The bail-outs of Argentina and Mexico would be put in the shade.

The interest Greece will pay will be around 5%. That is less than the current market rates and will not please German taxpayers. Germany will be the biggest provider and some will argue that in the end they are subsidising bad behaviour.

This is the final throw of the dice to see off the speculators. The Greek Prime Minister, George Papandreou, said: "No one, any longer, can play with the euro, no one can play with our common future."

In Greece, this is increasingly being portrayed as a battle with speculators. The prime minister said a "gun was on the table" and it was about to be loaded. The target was the speculators. What both Athens and other European leaders hope is that market players who have been testing the will of the eurozone will back off knowing there is now a wall of money behind Greece.

And it is still just possible that investors will be tempted into buying Greek bonds. It is also possible that as the financial markets analyse this deal the cost of financing the Greek deficit will fall. The first test comes on Tuesday when Athens will attempt to auction 1.2bn euros in treasury bills. By the end of May, Greece needs to borrow 11bn euros.

But if Greece cannot raise the money it will call in the rescuers. The Greek prime minister will pick up a phone and admit to the European Commission that it cannot finance itself through the markets. The battle will have been lost.

It will be touch-and-go whether Greece can survive without throwing in the towel. My sense is there is an expectation that Greece will need to call on the loans that are now available. If it happens, Europe's leaders will claim it signifies that the system works. "It shows that the eurozone is serious in doing what is necessary to secure financial stability," said the President of the Commission, Jose Manuel Barroso.

That is true but it cannot disguise failure. There was no mechanism to help a country struggling with debt. Already there are those who are saying it will not be a bail-out because Greece would be saved by loans that are repayable.

Many will see this as playing with words. What if the loans cannot be repaid? Will they just be rolled over? And what if other countries like Portugal or even Spain run into difficulty? Will the same facility be made available to them and who will ultimately finance it?

Not surprisingly, the Spanish finance minister said the deal "indicates a strengthening of the eurozone and stresses the principle of solidarity among the countries that comprise it". The vulnerable tend to be fans of solidarity.

Down the road, other questions will come into play. What if Greece - deep in recession -cannot meet its target to reduce its deficit by 4% this year? What if the economy goes into freefall? What if countries sense they may not get their money back? If it appeared others might want rescuing, when would the German taxpayer cry "enough"? Can the single currency prosper without fiscal union - a step with profound political implications? Can the eurozone survive when its economies are so different?

To stabilise the patient, it has taken a massive rescue plan, but the eurozone will not be stable until the fundamental questions are addressed. All eyes will be on the financial markets.


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