Germany Agrees to Greek Loans
German Chancellor Angela Merkel’s government is dropping opposition to Greek aid and is prepared to offer Greece loans at below market rates. Rates would be above those charged by the IMF which will participate in the rescue plan along with the EU. The loan arrangement will address German opposition to subsidized loans. Recent reports indicate that Greece may receive loans for 20 to 25 billion Euros at a rate of 5%. German opposition to subsidized loans had threatened rescue efforts and public opposition to subsidized loans for Greece is widespread in Germany. Billionaire investor George Soros said, “They have to be given some help from Europe or the IMF at concessional rates. It is a make or break time for the euro and it’s a question whether the political will to hold Europe together is there or not.”
Lack of Clarity in EU/IMF Agreement
The European Commission said it will hold a news conference after Sunday’s teleconference between Euro Zone finance ministers. The European Central Bank and the European Commission will also participate. Under the terms of the March EU/IMF agreement the EU will provide more than half of the loans and the IMF will provide the rest. The loan mechanism would be triggered if Greece runs out of funding options. Greece received even more bad news this week after Fitch’s ratings agency downgraded Greece to BBB-, just above ‘junk’ status. Fitch’s outlook for Greece remains negative. In a statement Fitch’s said, “The lack of clarity regarding the mechanism for timely external financial support may have hindered Greece’s access to market finance at affordable cost and hence further undermined confidence in the capacity of the government to meet its fiscal targets.”So far this year the euro has fallen 6% against the US dollar. The lack of clarity in the EU/IMF agreement has been cited as one of the reasons Greece’s borrowing costs remain so high. Greek Prime Minister George Papandreou has repeatedly said that Greece needs below market costs to cut Greece’s massive deficits.
Greece Has Not Asked For Aid
Although Greece has not yet asked for aid the Athens government considers Sunday’s teleconference important. Government spokesman George Petalotis told reporters, “Greece has not asked (for) the activation of the mechanism. It is an important step to detail the terms of the mechanism.” The effects of Sunday’s conference will not be felt until Markets open on Monday.
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