Euro rises as markets back Greek rescue deal

April 12, 2010
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, BRUSSELS, Apr 12 – The euro rose sharply on Monday as the markets embraced the 30-billion-euro aid package for debt-ridden Greece, a massive safety net also designed to restore confidence in the single currency.

Finance ministers from the 16 countries that share the under-pressure euro currency agreed Sunday a three-year financing programme at interest rates of around five percent.

The decision to spell out the scale and the terms of the aid, which will involve all of the eurozone members, was aimed at soothing markets that have dragged down the euro against the dollar and forced up the interest rates Greece has to pay to borrow money.

The euro jumped to 1.3642 dollars when trading opened in Tokyo on Monday from 1.3497 in New York late Friday.

"The euro is firmer as traders took heart from the Sunday announcement of the aid package for Greece," said Daisuke Karakama, forex analyst at Mizuho Corporate Bank.

Asian stock markets also welcomed the move, with Tokyo 0.98 percent higher, while Hong Kong added 0.11 percent and Sydney gained 0.62 percent, pushing it above 5,000 points for the first time in more than a year.

In the days ahead of the agreement, the euro fell sharply and the yield on Greek 10-year bonds hit the highest level since 1998 amid persisting doubts about whether Athen\’s eurozone partners would indeed offer loans if needed.

"But the gain could be short-lived as I can\’t find many fresh factors from what\’s written in the statement," Karakama added.

"The undertone of the euro\’s weakness against the dollar probably won\’t change for a while," he said.

The IMF\’s role — which would be unprecedented for a eurozone member state — is to be the focus of talks starting on Monday, including what measures Greece would be required to take in order to get the cash.

EU Economic and Monetary Affairs Commissioner Olli Rehn said Sunday it would be for the IMF to reveal its precise share, but that "in principle" the split would be of the order of 2:1 for funding between the EU and the IMF.

An EU official said it would mean another 15 billion euros.

The Greek government stressed after the agreement that no request to activate the debt support had been made.

But priming the EU aid mechanism comes at exactly the right time for Greece which on Tuesday intends to issue 1.2 billion euros in treasury bills.

Greece has to find around 11.5 billion euros by next month, part of some 54 billion euros needed for this year to cover debt repayment and urgent budget needs.

Its total debts were last tallied at some 300 billion euros.

Hopes that repeated political expressions of solidarity with Greece, which has enacted savage budget cuts and raised taxes in a bid to plug the gaping holes in its national finances, would suffice were dashed by a spike in Greek bond yields, or the interest Athens must pay its creditors.

The yield on Greek 10-year bonds last week soared past 7.5 percent, its highest since 1998.

Greece has suffered successive credit downgrades from Fitch and the other two major ratings agencies, Moody\’s and Standard & Poor\’s, heightening its risk profile among investors.

The rescue package is intended as a back-up plan in case Greece is no longer able to raise funds to repay its debts and finance its budget on financial markets because of excessively high interest rates.

Greek Prime Minister George Papandreou, who has attacked speculators in Greece\’s debt drama, said after the ministers agreed the deal that "nobody can play with" the euro.

"This is a clear and strong commitment: it shows that the euro area is serious in doing what is necessary to secure financial stability and about its commitment to give support to Greece," European Commission chief Jose Manuel Barroso said in a statement.

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