Euro rises with Greece bailout agreement

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Story by Laura Lynch, PRI’s “The World”

The Euro has been on a long slide against the dollar, but Europe’s single currency is making a bit of a comeback after leaders from the Euro countries finally agreed on a bail out plan for debt ridden Greece. After weeks of disagreement, European Union leaders made a deal aimed at shoring up confidence in the Euro and in the countries that use it. 

The 16 countries that use the Euro came to the brink of a political breakdown at last week’s emergency summit before they finally found agreement. It means Greece, which faces debts it can’t afford to repay, can count on a rescue plan if need be.

A relieved Greek Prime Minister, George Papandreou called the deal a success. “The European Union found itself just recently in front of a huge challenge. I believe it rose to the task. Both with determination, with a strong will, we, the European leaders, have succeeded in safeguarding our union and our common currency.”

The other big winner appears to be German’s Chancellor Angela Merkel who refused to bail out the Greeks unless the international monetary fund also stepped in.  

“I am very satisfied with yesterday’s compromise,” said Merkel. “I think that Europe has proved itself able to negotiate on an important question, and at the same time has done something for the stability of the Euro and for solidarity with a country in difficulty.”

The deal marks a first, allowing the Washington-based IMF to play a role in the affairs of the Euro. If necessary, the IMF will finance a major share of the Greek rescue package.  There was some grumbling from European leaders who felt Europe should be able to solve its own problems.

Still, European Commission President, Jose Manuel Barroso, says the agreement demonstrates that Europe is up to the job.

“We have shown that it is possible to deal with something that is a new challenge in a truly European way. So I’m extremely happy with the solution that was found, very much along the proposals of the European Commission.”

But all the positive talk cannot mask the reality that other European economies — Portugal, Ireland and Spain — are facing their own severe economic problems.

A senior policy advisor to Portugal’s opposition center right Social Democratic Party, Antonio Borges, believes today’s deal can only help his country.

“There is a chance that markets will be calm, that what has been done for Greece will actually steady the situation and that Portugal will be able to overcome its short term difficulties.”

But analysts are more worried.

“In a sense there is a degree of similarity between Portugal, between Spain,” said Jeremy Stretch, a senior currency strategist at Rabobank. “There is always the risk that the investment community will say well yes, Greece is one thing, but that’s not the only part of the Euro zone which has very similar problems.”

EU members already have rules prohibiting deficits that amount to more than three percent of a nation’s output. But this crisis has exposed a weakness: there are no tough sanctions for nations who flout the system. 

Paul Hofheinz of the Lisbon Council think tank says all member states need to take a hard look at the reasons why they signed up for the Euro.

“Investment rates are up in countries that are inside the Euro zone. The trade among those countries is up and the borrowing costs are really down, in particular for a country like Greece. This is one reason why they want to be in the Euro; it’s economically beneficial for them. But it comes with responsibilities too. You can’t just have all the benefits of the Euro and not keep your own house in order as well.”

If this crisis did produce a ground breaking agreement, it also served to highlight the deep disagreements over how to manage a single currency shared by 16 nations with very different economic priorities.

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