EU leaders forge Greek bailout plan
Deal could cause limited default
BRUSSELS - After weeks of uncertainty that revived fears about the foundations of the euro, European leaders yesterday clinched a new rescue plan for Greece that could push the country into default on some of its debt for a short period but would give Europe’s bailout fund sweeping new powers to shore up struggling economies.
At a press conference, Chancellor Angela Merkel of Germany confirmed the $157.08 billion aid package for Greece. European officials also said that financial institutions that own Greek bonds would contribute $72.05 billion through 2014 through a combination of debt extensions and the purchasing of discounted Greek bonds on the secondary market.
The outlines of the plan worked out by the 17 eurozone heads of government seemed particularly bold, dealing with the economic problems of bailed-out Ireland and Portugal as well as Greece, and calling for nothing short of a “European Marshall Plan’’ to get Greece itself on a road to recovery.
On the central issue of extending debt, rating agencies had already issued strong warnings that such steps might constitute a limited form of default because creditors would not be repaid in full on the original terms.
The agreement came after days of conflict among Europe’s leaders over how to keep the debt crisis from engulfing the much-larger economies of Italy and Spain. Any contagion would not only pose a potent threat to the euro but could destabilize the entire global financial system.
The plan calls for a “comprehensive strategy for growth and investment in Greece,’’ including the release of European Union development funds to finance infrastructure projects.
More significant, the euro zone leaders gave wide-ranging new powers to the bailout fund, the European Financial Stability Facility, by allowing it to buy government bonds on the secondary market and to help recapitalize banks where necessary.
That would effectively turn it into a prototype European version of the International Monetary Fund. The bailout fund would also help countries that had not requested a rescue.
Strengthening the bailout fund signals a new willingness to come to terms with the scale of the euro zone’s debt crisis by taking a big step toward common economic structures. The challenges for Greece and the other bailed-out countries remain enormous, however.
Diplomats said going forward with the proposals would require a change in the fund’s rules, which in turn would require the OK by national parliaments.
On the eve of the summit meeting, a statement from the French president, Nicolas Sarkozy, and Merkel said they had listened to the views of the president of the European Central Bank, Jean-Claude Trichet, who flew in from Frankfurt unexpectedly to join them in Berlin.