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EU approves bailout loans for Greece, if needed

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Germany stands firm
STORY HIGHLIGHTS
  • European leaders agree bailout plan for Greek economy with IMF contribution
  • Euro-area member states are ready to contribute to "coordinated bilateral loans"
  • The size of the loan packages was not immediately available
  • The Greek government revealed last year its budget deficit was 12.7 percent of its GDP

(CNN) -- German Chancellor Angela Merkel has described the agreement to secure an economic bailout plan for Greece as important for the stability of Europe's common currency.

"I think Europe proved its capacity for action on a major issue," Merkel told a news conference Friday, in quotes carried by Agence France-Presse.

"For all of us it is important that our common currency... remains stable and that's why yesterday was important for the euro."

Greek Prime Minister George Papandreou said It was "an important decision we took today," according to CNN affiliate ERT. "It guarantees the protection of financial stability in the euro zone."

The rescue plan, approved by all 16 leaders of the euro zone countries meeting at a summit in Brussels on Thursday, involves funds from both Europe and the International Monetary Fund. EU leaders had been reluctant to accept outside help for one of their own.

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According to a joint statement on the EU Web site, a "majority" of the euro zone States would contribute an amount based on their Gross Domestic Product (GDP) and population, "in the event that Greece needed support after failing to access funds in the financial markets."

This means that Germany will be the main contributor, followed by France.

Although no specific figure was given for the total value of the package, a senior European Commission source was quoted by Reuters.com as saying it would be worth around $26.8 billion.

Lorenzo Bini Smaghi of the European Central Bank told CNN that the plan was not the ideal solution but "politically it's what has been decided and we have to make it work."

He added that it was vital the situation was not repeated in future.

Merkel pushed for a plan involving the IMF, eager to show Germans that their country would not have to foot the entire bill to help Greece.

"As part of a package involving substantial International Monetary Fund financing and a majority of European financing, euro-area member states are ready to contribute to coordinated bilateral loans," said a statement from European heads of government and state.

A European-backed loan package requires the unanimous approval of European Union members, meaning any euro zone country would have effective veto power.

"Any disbursement on the bilateral loans would be decided by the euro-area member states by unanimity, subject to strong conditionality and based on an assessment by the European Commission and the European Central Bank," the statement said.

The Greek government revealed late last year that its budget deficit was 12.7 percent of its gross domestic product, far exceeding the European Union limit of 3 percent. Countries participating in the EU must agree to that condition and other economic goals.

Greece aims to reduce that deficit to 8.7 percent this year and to reach the EU target by 2012.

On Friday, leaders planned to discuss preparations for next month's G-20 meeting in Washington. They also planned to discuss how to secure global commitment to climate change goals after the United Nations conference on climate change in Copenhagen, Denmark, in December.