Following grim economic news, European leaders have reached a deal to provide aid to Greece. The measure is an unprecedented move to prevent a broader crisis in the 16-nation bloc that shares the Euro. The aid signifies the first bailout of a Euro zone member since the currency was introduced 11 years ago.
Speaking with reporters at an EU leaders’ summit, EU President Herman van Rompuy, commented, “There is an agreement on the Greek situation. We will communicate now the agreement to the other leaders.”
Polish Prime Minister Donald Tusk told reporters earlier that the aid was likely to come in the form of loans. “It could be voluntary loans from member states. That seems to be the best option,” Tusk said.
Until this week, they have avoided speaking openly about the aid, fearful that it might alleviate pressure on the Athens-based government to implement tough measures needed to combat a deficit that soared to 12.7 percent of gross domestic product in 2009 — more than four times EU limits.
Now, Athens needs to borrow 53 billion Euros ($75 billion) this year to cover its deficit and refinance debts. This year, its debt pile is expected to grow to more than 290 billion Euros. Further, the cost of servicing that debt has soared as bond markets have punished Greece for its financial profligacy.
Even with EU support, the Greek government faces challenges in consolidating its budget and restoring confidence in an economy whose imbalances were worsened by the economic and financial crisis.
European leaders are anxious to prevent Greece’s woes from spreading to other highly-indebted euro-zone members like Portugal or Spain. If other countries follow suit, the currency area would face a bigger crisis that could reverberate around the globe.