New $61 Billion Aid Package Is No Cure For Greece’s Long Term Ills

After an extraordinary teleconference on Sunday, Eurozone members offered Greece a rescue package worth as much as $61 billion (45 billion euros) at below-market interest rates. But even though the aid package sparked a rally in Greek stocks and bonds, it probably won't be enough to cure the debt-plagued nation's long-term ills. A surge in Greek borrowing costs last week sent yields to an 11-year high, forcing European finance ministers to take action. The result was an offer of as much as $40.7 billion (30 billion euros) in three-year loans over the next year. Another $20 billion (15 billion euros) in aid could come from the International Monetary Fund (IMF). The interest rates charged to Athens would be around 5% for a three-year fixed loan - above the IMF's standard lending rate but below the 7.45% jittery investors were getting for purchasing Greek bonds last week. " This is a huge amount ," Stephen Jen, managing director at BlueGold Capital Management LLP in London and a former IMF economist, told Bloomberg News . "This is more than a bazooka. They have gone nuclear on the issue of Greece. In the short run, the market is short Greek assets so we'll get a rally in those." News of the rescue package sent prices higher for short-term Greek debt vehicles, reflecting a lighter mood among investors who sensed a much lower risk of a debt default.