EU to Rescue Greece in Exchange for austerity

European Union leaders vowed to stave off a Greek default as long as Prime Minister George Papandreou pushes through a package of budget cuts next week, pledging to do whatever it takes to stabilise the euro economy.

“We have agreed that there will be a new programme for Greece,” German Chancellor Angela Merkel told reporters at an EU summit in Brussels today. “This is an important decision that says once again we will do everything to stabilise the euro overall.”

Greece’s next hurdle is to shepherd ¤78 billion ($111 billion) of austerity measures through parliament, after yesterday’s endorsement of the program by experts from the European Commission, the European Central Bank and the International Monetary Fund.

Europe’s latest attempt to stem the debt crisis came after bonds of debt-strapped euro nations slumped and officials in the US and China warned that the euro area’s failure to restore confidence threatened the world economy.

Greece’s Papandreou called the commitment to a new three- year aid programme “not only a green light but also a positive sign for the future of Greece.”

The summit ended today with leaders endorsing Italy’s Mario Draghi as the next president of the ECB after a last-minute dispute threatened to overshadow the efforts on Greece.

‘New Job’
Bini Smaghi promised to move to a “new job” by the end of the year, Sarkozy said in Brussels. Draghi is slated to take over the ECB helm from Jean-Claude Trichet on Nov. 1.

Yesterday’s discussions were dominated by Greece, which is drawing on ¤110 billion of loan pledged last year. The leaders paired their show of solidarity with pressure on the Greek opposition party to fall in line with the savings programme.

Opposition leader Antonis Samaras refused to commit in meetings with fellow European conservatives in Brussels. While backing budget cuts, he lashed out at the “current policy mix” for too much reliance on tax increases.

‘Worrisome Days’
Papandreou offered an assurance that he would deliver the budget cuts demanded in exchange for the ¤12 billion installment of emergency loans due in July and a new rescue package, a Greek government official said.

Already at a European record of 142.8 percent of GDP, Greek debt is set to rise to 166.1 percent next year, the EU predicts. The effort to cut a budget deficit that is about 10 percent of GDP has helped deepen a third year of recession.