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Ten days to save the euro as EU puts its faith in Athens

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Ten days to save the euro as EU puts its faith in Athens

Photo © vieraugen - Fotolia

(BRUSSELS) - The EU has 10 days to save the euro and prevent any harm to the world economy after putting its faith in Athens to make good on a vow to impose even more unpopular austerity measures on a restive people.

An initial bounce for the euro when EU leaders agreed to grant debt-stricken Greece a second bailout in little over a year faded swiftly as markets looked beyond Thursday's EU pledge to do "whatever necessary" to shield the currency.

The creaking symbol of European unity is caught in the biggest challenge of its short life, after a series of bailouts and no guarantees that another one will finally tame the debt crisis threatening to torpedo the eurozone dream.

German Chancellor Angela Merkel said Friday that leaders had struck "an important political accord for the stabilisation of the euro," which Belgian Prime Minister Yves Leterme said took just half an hour to thrash out.

Nevertheless, "concern lingered over whether the plan would be approved by (Greek) lawmakers and whether it would be implemented on the medium- and long-term basis," said Gen Kawabe, a dealer at Chuo Mitsui Trust and Banking.

The European Union set conditions to its rescue -- Greek Prime Minister George Papandreou must first of all, by June 30, win two key parliamentary votes.

If won, the legislation will impose 28 billion euros of additional austerity measures over five years and a sale of Greek state holdings which international partners hope can raise up to 50 billion euros.

But a general strike has been called by Greek unions starting on Tuesday, with Greek conservative opposition leader Antonis Samaras bluntly rejecting "more taxes in an economy in unprecedented depression."

Papandreou has only a slim, five-seat majority, and waverers in his Socialist Party, meaning the vote is by no means certain to be won.

Euro finance ministers meanwhile will still have to flesh out the awkward detail of a 100-billion-euro-plus rescue by the time they next meet on Sunday July 3, the key deadline they need to meet in the rescue.

The immediate impact of Thursday's deal should see Athens receive in mid-July a 12-billion-euro tranche of eurozone and IMF loans from last year's 110-billion euro bailout ($156 billion), which Greece needs to avert default.

"There is a very strong determination among the member states to save what we have done since 50 years all together," French Foreign Minister Alain Juppe said of fears the eurozone and ultimately the EU itself might implode due to the crisis.

US Federal Reserve chief Ben Bernanke has warned that failure of the rescue efforts "would pose threats to the European financial systems, the global financial system and to European political unity."

The new Greek bailout would combine fresh eurozone loans and privatisation proceeds with a contribution from banks and other private investors who are being pressed to rollover Greek bonds coming due for redemption.

Ensuring the Greek government keeps to its latest five-year budget plan, as agreed with EU and IMF negotiators in Athens on Thursday, remains a tall order after slippage on 2011 figures and total debt now of 350 billion euros.

Even before the new bailout, Greece owes the equivalent of a year-and-a-half of total national economic output.

Milan-based UniCredit warned in a note that European Central Bank funding to Greek banks rose markedly in May -- to 97.5 billion euros from 86.8 billion in April.

It predicted "see-sawing trading and the hunt for safe-haven currencies will be the theme" for the coming period.

Eurosceptic English MEP Nigel Farage was to play up on those fears Friday, leading pall-bearers carrying a euro symbol in an open coffin past the entrance to the Brussels summit.

EUROPEAN COUNCIL - 23/24 JUNE 2011 - CONCLUSIONS


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