Greece’s Rescue Plan

As expected, the Eurozone countries drew up a rescue plan to safeguard the euro in case Greece defaults on its debt in the hopes of stabilizing its currency.

Broadcasting the fact that Greece's euro partners have drawn up an emergency loan strategy is meant to steady the bond markets and give investors confidence in Greece's ability to pull out of its debt crisis, in turn that decision will also pressures Greece to rely on its own measures for resolution. The objective would not be to provide financing at average Eurozone interest rates, but to safeguard financial stability in the euro area as a whole, the European finance ministers said in a statement. Contributing to the loan amount will be voluntary, although all Eurozone countries are likely to make a payment, in a sign of unity.

However, key details were omitted from the aid announcement, like what would trigger the emergency loan and how much Greece might receive. The ministers' vague outline of what the plan entails emphasizes their hope that the plan will never actually be needed.

The initial reaction to the Eurozone countries' pledge of support moved markets in a direction favoring Greece: Greek bonds' 10-year yields fell to 6.14%, resulting in a 300 basis-point spread over benchmark German 10-year bonds - the lowest spread since March 5, right after Greece released its austerity plan. Standard & Poor's took Greece off its "CreditWatch negative" list. Greece currently has an investment-grade BBB+ rating.

Greece has not yet made a formal request for aid, but has been asking for a declaration of support from its Eurozone counterparts. This decision marks the first time in the euro's 11-year existence that one Eurozone country might receive aid from another.

The countries have been clear in defining the aid to be different than a government bailout, which is prohibited under the Eurozone law.

The loans are not designed to be a desirable option but instead a last resort for Greece if it is not able to meet its debt obligations. Greece is encouraged to use the capital markets to find a better rate for refinancing to meet its $27.5 billion debt obligations maturing in April-May.

This plan however, will need approval from all European Union (EU) countries, scheduled to meet March 25-26.