European governments on Sunday offered debt-laden Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates as they try to end Greece's fiscal crisis and restore confidence in the euro.
Forced into action by a surge in Greek borrowing costs to an 11-year high, euro-region finance ministers said they would offer as much as 30 billion euros in three-year loans in 2010 at about 5 percent. That is less than the current three-year Greek bond yield of 6.98 percent. Another 15 billion euros would come from the IMF.
"This is a step of clarification that markets are waiting for — it shows there is money behind this," Luxembourg Prime Minister Jean-Claude Juncker told reporters in Brussels after chairing the ministers' conference call. "The initiative for activating the mechanism rests with the Greek government."
With the euro facing the sternest test since its debut in 1999, the 16-nation euro-zone maneuvered around rules barring the bailout of debt-stricken countries, aiming to prevent Greece's financial plight from spreading and to mute concerns about the currency's viability.
Germany also abandoned an earlier demand that Greece pay market rates.
The euro has dropped 5.7 percent against the dollar this year as the discord within Europe over the response to the Greek crisis sapped faith in Europe's economic management. It now buys $1.35.
"This is a huge amount," said Stephen Jen, managing director at BlueGold Capital Management in London and a former IMF economist. "This is more than a bazooka. They have gone nuclear on the issue of Greece. In the short run, the market is short Greek assets, so we'll get a rally in those."
A Greek finance ministry official said Sunday that market reaction to the aid package over the next few days would determine future developments. While Finance Minister George Papaconstantinou welcomed the announcement, he said the government was not requesting the bailout and planned to go ahead with planned debt sales.