Prime Minister George Papandreou said that while Greece still faced problems, the new plan would give it breathing space to implement his Socialist government's harsh austerity program, designed to reduce its massive budget deficit and pull Greece out of a financial crisis that has rocked the European Union's common currency.
Greece's 12.7 percent deficit for 2009 is four times over the EU limit, pointing to the
eurozone's inability to restrict members' debt and deficits. Worries of a Greek default also highlighted the lack of a European only safety net for
eurozone countries that can't pay their bills.
"Europe and Greece come out of this crisis much stronger," Papandreou said. "We know we're not yet out of the woods. We are on a track of implementing our (austerity plan) and we're determined to do so. But we have shown... that we have a strong will to take tough, indeed unprecedented measures, to react swiftly to the difficult circumstances."
The plan agreed on Thursday by the 16 eurozone countries would provide individual loans from other
eurozone countries and funding from the International Monetary Fund, in order to rescue Greece if the country found itself unable to borrow or pay its debts.
However, the short text outlining the rescue package - which is short on details
- specifies it can only be used as a last resort, and requires unanimous agreement of all
The agreement was reached after months of European wrangling, notably
with Germany, which strongly opposed having to pay to bail out a country that had been overspending for years and consistently falsified its financial statistics, and France, which argued that a eurozone member should be supported and could not be allowed to sink.
Papandreou insisted he did not believe he would ever have to ask for a rescue.
"We do hope and we believe we will never need to use this mechanism, but the fact that it is there is a very positive signal. Europe is backing us," he said, adding that the plan's existence "will allow us in a very calm and organized fashion to implement our program."
The day after the announcement, the euro recovered from a 10-month low against the U.S. dollar, to $1.3374 in midday trading in Europe from below $1.33 on Thursday. The interest rate gap, or spread, between Greek 10-year bonds and equivalent German issues
- a key indicator of market trust - narrowed to 305 basis points from about 330 Thursday. The narrower the spread, the more confidence markets are showing in Greece.
Although the level still translates to roughly twice Germany's borrowing rate, Athens hopes the bailout plan will reassure markets and eventually lower its cost of borrowing.
Greece needs to borrow some euro54 billion this year, and the country must refinance some euro20 billion in April and May. It has been able to sell bonds but at interest rates it says are not sustainable.
The fact that a safety net is now in place "is also sending a very positive message to the markets that they are backing Greece, Europe is backing Greece, Greece will not have any problem," Papandreou said, adding that "we will find the opportune time to go out on the market."
EU Commission President Jose Manuel Barroso echoed the sentiment, saying that "I hope that financial markets will now act on fact and not on fiction."
The deal also won the Greek government a slight reprieve from labor unions at home, who have staged a series of strikes to protest the austerity plan. Greece's largest umbrella union, GSEE, said Friday that while it feared a spike in unemployment, it would hold off on staging more strikes to help the government improve public finances.