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Euro rebounds after Greece debt deal

French President Nicolas Sarkozy talking to German Chancellor Angela Merkel in Brussels on 25 March, 2010.
French President Nicolas Sarkozy talking to German Chancellor Angela Merkel in Brussels on 25 March, 2010. REUTERS/Yves Herman

The euro has shown signs of stabilisation after the European Union agreed on unprecedented plans to rescue Greece from its debt crisis, ending a policy spat between France and Germany which had weighed heavily on the common currency. But with other eurozone members facing similar problems to Greece, the euro remains under pressure.

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At their meeting in Brussels on Thursday, the 16 eurozone countries agreed on a plan submitted by French President Nicolas Sarkozy and German Chancellor Angela Merkel, which allows Greece, in case it needs financial aid, to turn to both the International Monetary Fund (IMF) and the eurozone countries.

European countries would contribute the main sum to the rescue package, and interest rates paid for the loans would be based on market prices.

The agreed deal follows Angela Merkel’s proposal, who said she was “very happy about the outcome of the meeting”. Thursday was an important day for the euro, she said, adding “it is important for us to keep our common currency, which in itself is a symbol of peace and common interests, stable on a long-term basis”.

French President Nicolas Sarkozy had supported Merkel’s initiative, but failed to convince the European countries of establishing a common European economic government.

The eurozone countries called upon the European Council – the heads of state of the European Union – to “improve the EU’s economic management” while suggesting a stronger role for the Council in coordinating the bloc’s economic policy.

The common currency, the euro, hit a 10-month low against the dollar on Thursday immediately after the deal was announced, with investors concerned by comments from European Central Bank head Jean-Claude Trichet, who said the plan to offer Greece loans involving the IMF was “very, very bad”.

But it recovered after Trichet clarified his comments and welcomed the deal for Greece, including its IMF component. Stock markets saw the euro firmer on Friday.

Meanwhile, the interest rate at which Greece can borrow money on markets fell sharply after the deal was announced.

Despite the relief about the agreed rescue plan for Greece, analysts expect the euro to remain under pressure, as market attention now turns to other weak eurozone members like Portugal, Ireland and Spain, who face similar problems.

The EU’s Growth and Stability Pact forbids countries from having public debt higher than 60 per cent of Gross Domestic Product. The public deficit of eurozone members, or new borrowing per year, cannot be higher than three per cent of GDP. Greece is not the only eurozone member with problems. Here’s how other European countries are peforming:

Greece: Public deficit: 12.7 % of GDP (in 2009); Public debt: More than 300 billion euros, or 125% of GDP (2010 forecast); Unemployment rate: 9.7%.

Germany: Public deficit: 5.5 % (2010 forecast); Public debt: 76 %; Unemployment rate: 8.6 %. 

United Kingdom: Public deficit: 12.7 % (2009); Public debt: 80.3% (2010 forecast); Unemployment rate: 7.8%.  

Spain: Public deficit: 11.4 % (2009); Public debt: 66.3% (2010 forecast); Unemployment rate: 19.5 %. 
 
Portugal: Public deficit: 9.3 %; Public debt: 84.6% (2010 forecast); Unemployment rate: 10.4%.

Italy: Public deficit: 5.3 % (2010 forecast); Public debt: 115.8 %; Unemployment rate: 10 %.

Ireland: Public deficit: 14.7 % (2010 forecast); Public debt: 82.9% (2010 forecast); Unemployment rate: 13.3%.

France: Public deficit: 8.2 % (2010 forecast); Public debt: 83.2 % (2010 forecast); Unemployment: 10 % (fourth quarter 2009).

 

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