Saddled with debt and ever increasing borrowing costs, European finance ministers said Sunday they would offer the country up to 45 billion euros ($61 billion) in financial loans at below market interest rates.
The move comes after Greece’s borrowing costs surged to an 11-year high. The pledge will not only restore confidence in Greece’s ability to service its debt, but will also restore some faith in the euro, which has been in a downtrend in recent months.
The euro has dropped 5.7 percent against the dollar so far this year as investors worried over the Greek debt crisis and how it would impact the rest of the 16-nation eurozone.
Most recently, Greek 10-year bonds garnered interest rates in excess of 7 percent as investors demanded a higher return for the presumed risk.
Lower interest loans are essential for Greece as the probability it would default on debt grew as interest rates increased. Greece has roughly 54 billion euros in debt coming due in 2010, along with battling a massive budget deficit.
If investors have faith in the finance ministers’ pledge, then rates on Greek debt may fall in the commercial markets to more reasonable levels, allowing the country to borrow from the credit market rather than tap government loans.
