Relief in Brussels as Greek deal boosts euro (1st Lead)

Mar 26, 2010, 12:58 GMT

Brussels/Frankfurt - The deal between eurozone leaders to help Greece face its debt crisis helped the European currency rally against the dollar in early trading Friday.

The euro rose 0.7 per cent to 1.3364 dollars after it had slumped earlier in the week to its lowest level in 10 months.

'For all of us it is important that our common currency, which is a success for peace and unity, remains stable, therefore I think yesterday was an important day for the euro,' German Chancellor Angela Merkel said on the second day of a European Union summit in Brussels.

A deal emerged late Thursday after eurozone leaders endorsed draft proposals presented by France and Germany. Merkel dropped her opposition to promising emergency loans to Greece after securing key concessions on conditions for disbursing aid.

German public opinion was strongly opposed to what was perceived as reckless fiscal behaviour by Greece. Merkel, whose coalition faces regional elections on May 9, therefore insisted that the eurozone would only step in to help as a last resort, and in coordination with the International Monetary Fund.

'Overall I am very happy,' the chancellor said.

In exchange for the Greek aid package, Germany also demanded tougher sanctions for states that ignore the eurozone's economic guidelines, so that no other country falls into an economic mess similar to the one Athens is currently facing.

However, Baltic states suggested that Germany itself - along with France - contributed to the current crisis by pushing to water down the euro's original strict fiscal discipline in 2005 after it emerged that they had broken the rules themselves.

It was a 'mistake,' Lithuanian President Dalia Grybauskaite told the German News Agency dpa.

'The (euro) sanctions should be renewed, because they were there for some time but then it was changed,' Latvian Premier Valdis Dombrovskis said on the fringe of the EU summit.

Both insisted that Greece's woes should not lead eurozone members to apply stricter criteria for countries lining up to join the club.

Fellow Baltic country Estonia is likely to join the euro in 2011, while Lithuania and Latvia hope to follow in 2014.

'The situation in the Greek financial sector and economy will not directly affect the entrance conditions for the eurozone. What is important is that the eurozone is ... capable to ask responsibility from member states,' Grybauskaite stated.

'It would be totally absurd if due to the problems of one country fulfilling the (euro) criteria, others were punished,' Dombrovskis added.