Europe seals historic rescue deal for Greece

European leaders have clinched a deal that re-writes the 11-year-old eurozone's rule-book, with loans, backed by the IMF and under strict conditions, primed for miscreants like Greece.

Governments seeking to re-boot the euro's value also acted to stave off a repeat of the chaos unleashed on currency and sovereign bond markets by jaw-dropping debts already engulfing the likes of Portugal, Ireland and Spain.

After months spent warily sizing up the threat, and weeks of tension that commentators said represented the European Union's worst political crisis in a generation, France and Germany finally brokered agreement late on Thursday.

"Europe and Greece will emerge stronger from this crisis," said Greek Prime Minister George Papandreou after President Nicolas Sarkozy and Chancellor Angela Merkel paved the way in tense Brussels talks.

Afterwards, EU president Herman Van Rompuy said all 16 eurozone nations had committed to "participate" should the button be pressed on bilateral loans described as a "last resort" if normal market credit were to dry up.

Despite the unprecedented nature of the move and its lasting repercussions, Van Rompuy stressed that the aim was to "reassure all holders of Greek bonds" that Europe "will never abandon Greece."

Asked if Portugal might be the next country to need or come looking for assistance, Van Rompuy said its situation was "completely different" from that in Greece, where "statistical fraud" had turned a drama into a crisis.

While the International Monetary Fund has in the past helped EU countries Hungary, Latvia and Romania, it has never been involved in planning a financial rescue for a eurozone nation.

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The head of the European Central Bank, Jean-Claude Trichet, had warned beforehand that "all signs of a lack of responsibility" for the eurozone were "obviously very, very bad."

Afterwards, he said he was "pleased" that a solution had been found, but when asked if IMF conditions imposed on Greek territory could compromise ECB policy-making, he insisted that "the independence of the central bank is sacrosanct."

The decision to bring in the Washington-based lender of last resort, on a minority basis, came after bloated Athens debts dragged the euro's value to a 10-month low.

The euro fell again In New York, after the deal emerged, dropping to 1.3277 dollars at around 2200 GMT from 1.3315 dollars a day earlier.

"Investors are not satisfied" with the EU deal, said Kathy Lien, director of currency research at Global Forex Trading.

In the other departure, the agreement also envisages new sanctions being brought against wayward eurozone spenders in future.

A new task force drawn from the full, 27-member EU will be given until the end of 2010 to draw up recommendations, Van Rompuy said.

However, an accord between Sarkozy and Merkel to develop coordinated European economic "government," a demand from Paris that survived the cut in a French-language declaration, was watered down to "governance" in the English version, considered less likely to offend British sensibilities.

On the other hand, there was no reference to Merkel's conviction, expressed during the Sarkozy tete-a-tete, that a "modification" to EU treaty provisions would be required -- something that is equally vehemently opposed by Britain.

For loans to be activated, all eurozone members must agree -- although a top European official admitted contributions will effectively be voluntary.

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No sums have been advanced, but diplomats have consistently spoken over recent weeks of figures upwards of 20 billion euros (26.5 billion dollars).

Greece has been labouring under a 300-billion-euro debt black hole with the highest annual deficit in the EU last year, alongside Britain.

Athens has been paying interest rates above six percent for loans, and wanted to find better terms with tens of billions of euros required to repay maturing Greek debt over the next couple of months.

source AFP

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