EU's Greece bailout will strengthen euro - analysts

The EU’s decision to grant Greece a second bailout package worth 109 billion euros ($155 million) will prevent – at least temporarily - the Balkan country's default and strengthen the euro, analysts told RIA Novosti on Friday.

Eurozone leaders agreed at an emergency summit on Thursday a further package of measures aimed at preventing Greece from defaulting on its enormous public debt. The bailout will comprise funds from the European Union, the International Monetary Fund and private investors.

Uralsib chief economist Alexei Devyatov said that the temporary solution of Greece's problems was an optimistic signal for world financial markets, but the country needed serious reforms.

"Athens needs to reduce its budget deficit and social expenses; furthermore it has the lowest labor efficiency in the Eurozone. The problem can be solved only by structural economic reforms, otherwise financial inflows will only delay the inevitable," Devyatov said.

Greece is facing a default due to its $490-bln foreign debt and a budget deficit that surpassed 15 percent of GDP in 2009.

The new bailout funds come on top of the 110 billion euros already granted by the EU in May last year.

The new bailout includes up to 54 billion euros from European banks, whose losses will exceed 100 billion euros in the next few years because of this. The banks’ problems may influence the euro’s position, Deputy Director of Development Center in The Higher School of Economics Valeri Mironov said.

"If the EU gives guarantees on credits to the banks to allow them asking the European central bank for re-crediting, the situation will be solved," Mironov said.

Alfa-Bank chief economist Natalya Orlova thinks that banks' losses will be less considerable and the banks will recover the funds from various sources.

The euro started strengthening after the EU decision, and by mid-Friday had grown to 1.44 to the dollar from 1.40.