Europe settles on pact to rescue ailing Greece

BRUSSELS, Belgium - Countries that use the euro said yesterday that they had agreed on a financial backstop for Greece. It would combine loans from other eurozone governments and the International Monetary Fund, and it is aimed at stopping the government debt crisis that has undermined the shared currency.

The bailout program could be used only if Greece is shut out of normal market financing such as selling government bonds, and would require all 16 countries to agree on releasing the loan funds.

It also calls for tougher rules to keep government finances from getting out of control and causing another such crisis - a key weakness in the euro that has been exposed by the current crisis.

The plan was an attempt to stem a government debt crisis that has raised concerns that Greece's troubles might spread to other euro governments with troubled finances, such as Portugal and Spain, raising borrowing costs and worsening government debt loads.

A Greek default would be a serious blow to the euro - most economists and market analysts said they thought European governments would step in and stop it somehow, but promises of help have been vague until now.

German, Portuguese, Spanish, and Greek officials confirmed a deal at a summit yesterday of European Union leaders.

Portugal's prime minister Jose Socrates told reporters that all 16 countries using the euro would contribute - including his indebted nation. "The interest rates will be reasonable and not speculative," he said.

Greek Prime Minister George Papandreou said the rescue plan was "very satisfactory."

Germany and France earlier urged that adoption of a loan package for Greece or other troubled nations using the euro would come only as a last resort - when the country cannot borrow enough from financial markets, according to a draft text seen by the Associated Press.

The text does not promise cheap loans to Greece - which wants to borrow at rates lower than those demanded by bond investors wary of the country's shaky finances.

The aim would not be to provide credit at average euro area interest rates, but to set rates that reflect a borrower's creditworthiness to give it an incentive to return quickly to normal market funding sources. It does not mention a figure for a potential bailout.