European officials agree on loan terms for Greece

European officials agreed Sunday to make as much as $40 billion in below-market-rate loans available to Greece, hoping to allay fears about a possible economic collapse in the country.

In an emergency videoconference among finance ministers, the 16 nations that use the euro overcame internal divisions about aiding Greece and added critical details to the largely conceptual rescue plan they approved last month.

Germany in particular had opposed concessions to a country it regards as having handled its finances irresponsibly. But in the face of an intensifying crisis, it agreed on the amount of money Greece should have available in three-year loans and on the 5 percent interest rate that would be charged.

The money will not change hands right away. Greece still hopes it can restructure its economy on its own and avoid the stigma of getting help from its neighbors or the International Monetary Fund. Under the terms of the European plan as described by officials after the meeting, the IMF would provide perhaps an additional $20 billion in loans, and Greece would be expected to accept the strictures that the international agency typically sets on government spending and finance.

The intense atmosphere that has beset Greece and the European Union in recent weeks demanded action. Last week, despite earlier, vague promises of aid from the other 15 euro countries, a skeptical market drove the interest rate demanded on Greek bonds to record highs and stoked talk of a possible national default on its debt.

The issue is of global concern. A Greek default would be the first among the countries that use the euro, and it would also emphasize the fragility of Western economies and potentially undermine faith in one of the world’s major currencies.

It could also derail a nascent economic recovery. Developed economies have been accumulating record levels of debt because of the global economic downturn, and there is concern that a Greek default could spread as a contagion to other European countries with high levels of borrowing.

After a rout on markets last week that pushed the interest rate on Greek 10-year bonds to more than 7.5 percent, European leaders said they felt compelled to make a stronger statement of support for Greece before markets opened Monday. The country needs to raise about $75 billion this year.

“This is a step of clarification that markets are waiting for — it shows there is money behind this,” Luxembourg Prime Minister Jean-Claude Juncker said from Brussels, where he led the videoconference, according to a Bloomberg News report from the city.

The plan “shows that the euro area is serious in doing what is necessary to secure financial stability,” European Commission President José Manuel Barroso said in a written statement. “Europe has shown that responsibility and solidarity can go together.”

IMF Managing Director Dominique Strauss-Kahn said in a news release that the agency would begin talks with Greek officials, the European Commission and the European Central Bank. The commission and the ECB were also involved in Sunday’s videoconference.

The agreement “marks a very important step,” he said. “The IMF stands ready to join the effort” if it is asked by the Greek government.

Market reaction will be closely watched this week to see whether the threat to Greece has passed. European leaders thought they had calmed the situation with earlier statements of support for the country. But the absence of details — how much money would be available and at what rate — left investors skeptical about whether Greece could raise the money needed for its government to continue operating amid high deficits and a weak economy.

That had led to a sharp spike in interest rates paid by the southern European nation, waning interest in its bond issues and rising concern about a possible default.

Sunday’s statement, however, could prove more effective. If investors know that Greece can tap money at 5 percent, market interest rates might moderate.

The crisis in Greece had raised doubts about the survival of the euro, creating a situation in which more economically healthy nations such as Germany are having to take responsibility for the problems of others, and limiting some of the options that would have been available to Greece if it used its own currency.

The country has adopted a program of spending cuts and tax increases that are raising prices on many goods, limiting increases in retirement pay; other steps aim to reduce an annual government deficit that approached 13 percent of economic output last year.

That level of overspending exposed a deep-seated schism in the European Union. Countries such as Germany, which is running a large trade surplus, regard European neighbors such as Greece as less productive and have been wary of extending help on terms that are seen as too concessionary.f