–Eurozone Set To Lend E80 Bln, IMF E30 Bln, Policymakers Say
–Aid Comes In Exchange For Strict 4-Yr Austerity Plan

By Emma Charlton

BRUSSELS (MNI) – European policymakers threw Greece a E110 billion
lifeline on Sunday – the first part of which will be in place before the
19th of this month – in exchange for a package of tough spending cuts,
tax hikes and structural reforms.

At an extraordinary meeting in Brussels, Eurozone finance ministers
pledged E80 billion in bilateral loans to Greece over three years, at an
interest rate of around 5%. The International Monetary Fund will add E30
billion to the pot by way of a standby agreement, the finance ministers
said.

Eurozone finance ministers said the programme would “help restore
confidence and safeguard financial stability in the euro area.”

Jean-Claude Juncker, head of the club of 16 Eurozone finance
ministers known as the Eurogroup, said up to E30 billion would be made
available by the Eurozone in the first year and that it would be in
place by May 19, when Greece has to meet its next refinancing
obligations.

In return Greece has signed up to an austerity package that its
finance minister described as “massive,” in which the government commits
to slash its budget deficit by E30 billion, or 11% of GDP, over four
years. In 2010, the measures are expected to cut the budget gap by 5.5
percentage points of GDP — during a year in which the economy is
expected to contract by 4%.

The deficit was 13.6% of GDP in 2009, and the new austerity plan
envisions bringing it down to 2.6% by 2014. Greece will be subject to
progress assessments every quarter.

“It is an ambitious programme, it’s austere but it is absolutely
necessary,” Juncker said. “All the financial obligations of the Greek
government will be met…until Greece has access to markets again,” he
said.

Olli Rehn, the European Commissioner for Economic and Monetary
Affairs, said the program was a “very specific plan.”

The amount that each of the other 15 eurozone countries will lend
to Greece will depend on their percent share of the European Central
Bank’s capital. Rehn said the rate charged on the loans – which he said
was around 5% – would ensure that no Eurozone member would be out of
pocket.

“These are loans, these are bilateral loans and the interest paid
by Greece is, in every case, higher than the cost paid by the country to
raise the money in the markets,” he said.

Under the terms of the agreement, Germany will lend the most – 28%
of the total, or around E22 billion over three years. The German
parliament now has to approve the deal, which Germany’s Finance Minister
Wolfgang Schaueble said could happen this week — though not all members
of Chancellor Angela Merkel’s governing coalition are thrilled with the
aid plan.

“Parliamentary approval, needed in some member states prior to the
release of the first tranche, is expected to follow swiftly,” Juncker
told reporters.

The Greek finance minister said his country would repay all the
money that was lent to it.

“We have already shown our determination to do what has to be
done,” he said. “Either we had to take these decisions, or we went to
the wall.”

Rehn said the country would be subject to strict quarterly reviews
to ensure it was meeting the targets set out in the plan.

“It is very simple and very clear,” he said. “The first (review)
will be conducted before the summer break, following the second quarter
of this year.”

All the policymakers rejected the idea that the European
institutions were infringing upon Greece’s sovereignty by insisting on
such strict conditions.

“Greece is not under tutelage, I reject that expression,” Juncker
said. “We have to respect others’ dignity, as we all want others to
respect ours.”

The plan outlines a E10 billion “stability fund, for a possible
need to stabilise the banking sector in Greece,” Rehn said. “That will
depend on the evolution of the situation and may not have to be used,”
he added.

And he insisted there were no worries about the problems spreading
to other countries in the currency club.

“Greece is a particular case,” Rehn “One cannot compare Greece to
other countries because of the very precarious debt dynamics that Greece
would face without this package and the profound statistical
irregularities.”

The European Council of heads of state and government, which are
set to meet in Brussels May 7, will evaluate the progress being made on
the legal side in each country, Juncker said.

“This European Council will not, of course, go back on the decision
we have taken but it will evaluate the situation which will arise by the
end of the week,” he said.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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