France and Germany agreed on a standby aid plan for heavily indebted Greece on Thursday that would involve money from European Union member states and the International Monetary Fund, the French president’s office said.
French officials said President Nicolas Sarkozy and German Chancellor Angela Merkel had explained their agreement to EU President Herman Van Rompuy, and countries that use the euro would discuss it later on Thursday. A French official said the deal, agreed in Brussels shortly before an EU summit, opened the way for bilateral loans to be made available under a system mainly involving the euro zone but also using money from the Washington-based IMF.
“There is agreement on the idea of a European framework. This European framework will be made up of coordinated bilateral loans,” a French official said.
“This European framework would be complemented by IMF loans with clear mention of the fact that the financing would mainly be European.”
The money would be used only if there were “very serious difficulties and there was no other solution,” he said.
A German official said euro zone states would have to agree to activate the plan, giving Berlin a veto.
The borrowing rate would not be subsidised but would take into account the economic state of the country using the loans.
“This is the framework set out to help countries that could be under very strong market stress,” the French official said.
Greece has not asked for money to help service its debts but has said it favours a standby package being made available to reassure investors without Athens having to use the money.
Merkel and Sarkozy also said the Greek debt and deficit crisis showed the need to strengthen economic governance in the euro zone — meaning closer coordination of policy — to deal with any threats like those in Greece.
An EU official said any agreement would include increased budgetary surveillance of euro zone countries.
“The IMF is a key part of it,” the EU official said. “There are two parts. There is a part on bilateral loans and there is a part on … surveillance.”
Paris and Berlin called for Van Rompuy to draw up a report before the end of this year laying out all the options for strengthening preventive mechanisms and sanctions.
The text of deal:
Brussels, 25 March 2010
STATEMENT BY THE HEADS OF STATE AND GOVERNMENT OF THE EURO AREA
We reaffirm that all euro area members must conduct sound national policies in line with the agreed rules and should be aware of their shared responsibility for the economic and financial stability in the area.
We fully support the efforts of the Greek government and welcome the additional measures announced on 3 March which are sufficient to safeguard the 2010 budgetary targets. We recognize that the Greek authorities have taken ambitious and decisive action which should allow Greece to regain the full confidence of the markets.
The consolidation measures taken by Greece are an important contribution to enhancing fiscal sustainability and market confidence. The Greek government has not requested any financial support. Consequently, today no decision has been taken to activate the below mentioned mechanism.
In this context, Euro area member states reaffirm their willingness to take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole, as decided the 11th of February.
As part of a package involving substantial International Monetary Fund financing and a majority of European financing, Euro area member states, are ready to contribute to coordinated bilateral loans.
This mechanism, complementing International Monetary Fund financing, has to be considered ultima ratio, meaning in particular that market financing is insufficient. Any disbursement on the bilateral loans would be decided by the euro area member states by unanimity subject to strong conditionality and based on an assessment by the European Commission and the European Central Bank. We expect Euro-Member states to participate on the basis of their respective ECB capital key.
The objective of this mechanism will not be to provide financing at average euro area interest rates, but to set incentives to return to market financing as soon as possible by risk adequate pricing. Interest rates will be non-concessional, i.e. not contain any subsidy element. Decisions under this mechanism will be taken in full consistency with the Treaty framework and national laws.
We reaffirm our commitment to implement policies aimed at restoring strong, sustainable and stable growth in order to foster job creation and social cohesion.
Furthermore, we commit to promote a strong coordination of economic policies in Europe. We consider that the European Council must improve the economic governance of the European Union and we propose to increase its role in economic coordination and the definition of the European Union growth strategy.
The current situation demonstrates the need to strengthen and complement the existing framework to ensure fiscal sustainability in the euro zone and enhance its capacity to act in times of crises.
For the future, surveillance of economic and budgetary risks and the instruments for their prevention, including the Excessive Deficit Procedure, must be strengthened. Moreover, we need a robust framework for crisis resolution respecting the principle of member states’ own budgetary responsibility.
We ask the President of the European Council to establish, in cooperation with the Commission, a task force with representatives of Member States, the rotating presidency and the ECB, to present to the Council, before the end of this year, the measures needed to reach this aim, exploring all options to reinforce the legal framework.