BRUSSELS, July 21 (UPI) -- European leaders agreed Thursday to a $140 billion, three-year loan package to rescue Greece from its latest financial crisis.
EU leaders also stepped up efforts to rescue the weaker elements of the eurozone while the Institute of International Finance announced new long-term bond options for private investors, possibly adding $70 billion more to keep Greece afloat, The Washington Post reported.
The latest plan, which would roll over maturing bonds, would allow Greece to default temporarily on its debt.
"This package establishes some useful principles including cheaper loans from the [European Financial Stability Facility] and the idea that debt restructuring will happen only in insolvent countries like Greece, not illiquid governments like Italy's," Jacob Funk Kierkegaard of the Peterson Institute of International Economics in Washington told the Financial Times. "But by and of itself, it is not going to put Greece on a sustainable path."
It also proposes a reduction in the interest rates offered to Greece, Ireland and Portugal, which have also accepted international help, and a 0.025 percent tax on eurozone bank assets, The New York Times said.
The EFSF, created last year to preserve European financial stability by providing financial assistance to eurozone countries in economic difficulty, might also extend credit lines and help in bank recapitalization, the Times said.
The multipronged formula -- coming after borrowing costs also spiked in Italy and Spain -- would likely lead Greece to being deemed in sovereign default, at least temporarily, the Times and The Guardian said.
"Nobody should be under any illusion -- the situation is very serious," European Commission President Jose Manuel Barroso said.
The commission is the European Union's executive arm, responsible for proposing legislation, implementing decisions, upholding EU treaties and running the 27-country EU day to day.
A German-French deal earlier Thursday followed a 6-hour meeting in Berlin among German Chancellor Angela Merkel, French President Nicolas Sarkozy and European Central Bank President Jean-Claude Trichet, officials said.
The last-minute deal followed a telephone dispute between Merkel and Sarkozy Tuesday.
Merkel spoke later Tuesday with U.S. President Barack Obama by phone, agreeing that "dealing effectively with this crisis is important for sustaining the economic recovery in Europe as well as the global economy," a White House statement said.
The Brussels summit is the 10th time in 18 months European leaders have come together to save the euro and Greece from collapse.
Greece received a $158 billion bailout in May 2010 after its debt soared to more than $485 billion, topping 160 percent of its gross domestic product. Economists say it needs a similar-size second bailout to stay afloat until 2014.
The sovereign debt crisis threatened to spread further Wednesday when Cyprus warned it would have to take drastic action to avoid a financial rescue of its own after a deadly July 11 naval base explosion destroyed the Mediterranean island country's main power station, spawning rolling blackouts during a heat wave and wreaking havoc to the already-fragile economy.
The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.