Euro zone leaders have reached agreement on a safety net to help debt-stricken Greece which will involve bilateral loans and money from the International Monetary Fund.
Portuguese Prime Minister Jose Socrates confirmed the agreement to reporters after leaders of the 16 euro zone countries met during a break in the EU summit in Brussels.
The unprecedented deal, which a French government source said would be two-thirds funded by euro zone contributions and one third by the IMF, will be activated only as a 'last resort'. It will involve unsubsidised interest rates, according to a text released by France and Germany.
For loans to be activated, all euro zone members must agree, although a top European official admitted that contributions would effectively be voluntary. No sums have been advanced, but diplomats have consistently spoken over recent weeks of figures upwards of €20 billion.
Greek PM George Papandreou told Greek television tonight that the euro zone was 'very satisfactory'.
The deal, reached earlier by French President Nicolas Sarkozy and German Chancellor Angela Merkel, is intended to reassure nervous financial markets and arrest a crippling rise in Greece's borrowing costs after a debt crisis that has shaken confidence in the euro.
After weeks of public argument over whether and how to help Greece, Merkel signalled in parliament that she would accept a contingency plan provided the IMF was involved and EU partners agreed to toughen the euro zone's budget deficit rules.
Some euro zone states, notably France, and ECB policymakers have previously opposed IMF involvement, arguing that such a move would highlight the single currency area's inability to solve the deepest crisis in its 11-year existence on its own.
ECB easing of rules to help Greek banks
Meanwhile, European Central Bank president Jean-Claude Trichet has given struggling Greek banks a boost by making it easier for them to secure funding. The ECB has decided to keep loan collateral levels unchanged into 2011.
'It is the intention of the ECB's governing council to keep the minimum credit threshold in the collateral framework at investment grade level, BBB-, beyond the end of 2010,' Trichet told a plenary session of the European Parliament in Brussels.
The decision means Greek banks will still be able to use Greek government bonds as collateral to obtain central bank funds, a situation which would have changed had the ECB reverted to its original loan standards of at least A- in January as planned.
Greek debt has been sharply downgraded by ratings agencies as the country gets to grips with massive debt and a public deficit that is more than four times the EU limit of 3% of gross domestic product (GDP).
The ECB news was welcomed by economists who said it should help soothe tensions on money markets that have demanded higher rates to lend money to Greece and fellow struggler Portugal. But some said the decision was also a u-turn from what the ECB had said a few months ago.
