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EU Commission calls for European loans for Greece

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[March 20, 2010]  BRUSSELS (AP) -- The European Commission urged Germany and other eurozone governments Friday to put up a package of government-to-government loans to ease Greece's financial plight and end weeks of financial turmoil and speculation.

European Commission President Jose Manuel Barroso said European aid is necessary because "we cannot prolong any further the current situation."

He spoke of "coordinated bilateral loans" that would not have to be paid out immediately.

Even as a standby gesture, Barroso said, the availability of aid from Greece's partners would show financial markets that EU nations are united to defend their single currency and the stability of the eurozone, the area of 16 EU nations that share the euro as their currency.

Speaking to reporters, Barroso urged EU leaders to agree on "coordinated bilateral loans" at a two-day summit opening Thursday in Brussels.

He did not elaborate on loan or participation conditions or other details.


In Athens, Greek government spokesman George Petalotis called Barroso's appeal a "positive development."

"We would like a clear declaration of this so that we can borrow money at a reasonable rate," Petalotis told The Associated Press in Athens.

EU sources have estimated that Greece needs a financial injection of about euro20 billion euros ($27 billion).

Barroso's proposal came as Germany and the EU head office were at loggerheads after German officials said Berlin can't rule out financial aid for Greece from the International Monetary Fund.

EU officials prefer to resolve the Greek financial crisis through European aid. But Barroso said he "did not want to speculate if there will be a financial contribution from the IMF."

Germany - Europe's biggest economy - has been reluctant to pledge direct financial aid because German public opinion takes a dim view of the shoddy statistics-keeping that have long hidden the true size of Greek deficits and debts.

On Thursday, Greece warned it would be forced to turn to the IMF for help - which would be an embarrassment for the single currency bloc - if the EU fails to extend any concrete support package to help reduce its market borrowing rates.

A European or IMF backstop would be aimed at reassuring markets and bringing down the high rates demanded from Greece as it seeks to borrow some euro54 billion ($73 billion) this year to plug its budget gap.

"We haven't ruled out IMF financial assistance," Ulrich Wilhelm, a spokesman for German Chancellor Angela Merkel, told reporters.

EU sources, speaking privately due to the sensitive nature of the issue, said Germany would have to take part in a loan package, or "the deal would not be credible."

The European Commission would oversee the loan program. Lending would be available at interest rates below those charged by commercial banks, these sources said.

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Greece hasn't asked for any financial support.

A Greek default would be a serious blow to the euro, but Germany in particular has resisted putting up money to bail Greece out after years of overspending.

Earlier Friday, the European Commission was at pains to point out that Merkel committed to a "European" solution to the Greek financial crisis only last month.

It noted that she and the other 26 EU leaders agreed in a Feb. 11 statement to "take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole."

EU officials said privately the Commission fears Germany's talk of a possible IMF bailout could encourage Austria, Finland and the Netherlands, which already prefer an IMF solution.

Merkel's finance minister, Wolfgang Schaeuble, has argued that the eurozone should be able to resolve its own problems without calling in outside help and - with Merkel's backing - has advocated the creation of a European Monetary Fund that could provide aid in future crises.

"From this fundamental conviction you can certainly conclude that, in the case of Greece, he would be very reticent toward financial aid from the IMF," said Schaeuble's spokesman, Michael Offer.

Greek Prime Minister George Papandreou has said he expects EU leaders to decide at the March 25-26 summit on a blueprint of aid from the 16 eurozone countries.

"Our clear priority is for Greece's problems to be solved within the framework of the eurozone," he added. "That is very clear."

Papandreou has said that going to the IMF, which imposes austerity measures on governments in return for financial aid, wouldn't hurt Greece because it already has followed IMF advice and made painful spending cuts.


Associated Press writers Geir Moulson in Berlin and Derek Gatopoulos in Athens contributed to this report.

[Associated Press; By ROBERT WIELAARD]

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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