Greek bailout terms to change, EU official says

The euro rose Tuesday as a European Union official suggested Greece should be given some leniency in meeting the terms of its international bailouts.

The euro gained 0.88per centto $1.2688 US late in the afternoon.

The official, speaking to journalists in Brussels, argued that the terms of Greece's bailout will be renegotiated because worsening economic conditions have made the old bailout agreement an "illusion".

The official, who spoke on condition of anonymity, citing policy, said that the goals of the agreement would not be changed: They remain to reduce Greece's debt to a level that is sustainable and to reform its economy to make it competitive.

But how those goals are achievedand over what time periodwill be up for discussion.

The process of renegotiating terms that dictate harsh austerity measures wont start until the parties in Sundays Greek election actuallycome to an agreement on how to put together a governing coalitionand then formally request modifications to its240 billion ($309 billion Cdn) rescue packages.

The two parties with the best chance of forming an allianceconservative New Democracy and socialist PASOKboth promised during the campaign to renegotiate some of the terms that require the Greek government to make drastic spending cuts.

There is afierce debate within the EU over how much leniency Greece should be shown in meeting the targets it agreed to in order to secure its bailout loan.

EU ministers meet Thursday

On one hand, someleaders say the priority must be avoid a chaotic exit from the euro in the very near futurean event many fear would destabilize Europe and send shockwaves through the financial world.

Others argue that Greece, now in the fifth year of a recession, could easily deteriorate to the point where a default and euro exit were inevitable anyway.

Unemployment in Greece is at a record 22 per cent, and many Greeks are struggling under the cost cuts and tax hikes imposed in exchange for the rescue.

While Germany has suggested theres wiggle room possible on the timing of the cuts, theres no negotiation on the size.

Chancellor Angela Merkel's office said Monday that she assumed "that Greece will keep to its European commitments."

Germany's position is at least partially political: its government is footing a large part of the bill for Greece's rescue, and it needs to be able to show its citizens that Greece is taking the steps necessary to ensure it can pay down its astronomical debt and never ask for another bailout.

Finance ministers from the 17 countries that use the euro meet in Luxembourg on Thursday and Friday to discuss how best to solve the problem.

Europe is a substantial trading partner with the rest of the world. If it falls into a deep recession sparked by a default in Greece ora massive bailout for Spain, orders for goods made in the U.S. and China are going to start falling off.

At the moment, the debate centers on whether to take the dramatic step and push for greater banking, fiscal and political union in order to rescue the single currency.

However, there are concerns, especially in Germany, that this is a long-term solution and can't be rushed into when the legal and political framework is not in place.