2010-Feb-9 - Germany working on Greek rescue plan: reports

LONDON (MarketWatch) -- The German government is working on a rescue package for Greece, reports from Berlin said Tuesday, news that sent stocks and the euro rallying.

The Financial Times Deutschland first reported the news on its Web site and the work on a rescue plan was confirmed by Michael Meister, deputy leader of the Christian Democratic Union/Christian Social Union in the Bundestag.

Meanwhile, a Reuters report cited a senior German ruling coalition party source as saying that euro zone countries have decided in principle to aid the debt-stricken nation.

Authorities were considering a range of possible actions, but were most likely to offer "bilateral" help, the report said.

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The reports boosted U.S. equities and lifted the euro above the $1.38 level versus the U.S. dollar. See Market Snapshot.

Credit-default swaps on Greece tightened dramatically, according to data from Markit. They dropped 80 points to 340, and are now less than three full percentage points higher than the equivalent debt of Germany payday advance.

In other words, the cost of insuring $10 million Greek government debt against default fell to $340,000 a year from around $420,000.

Fears of a Greek default have roiled financial markets in recent weeks. See Greece topics page for more coverage.

The ECB downplayed the significance of the schedule change, saying Trichet had long planned to attend.

The Greek government is implementing an austerity program designed to bring its budget deficit down from nearly 13% of gross domestic product in 2009 to less than the 3% E.U. limit by 2012.

The European Commission, the executive arm of the E.U., gave the plan a qualified endorsement, vowing to closely monitor Athens' efforts.

The aggressive measures, including public sector pay freezes, have met stiff resistance from public sector unions. Meanwhile, sovereign debt fears have spread across the southern euro zone, including Portugal and Spain.

European Union leaders are set to meet Thursday in a previously scheduled meeting to discuss the economic outlook, but Greece is expected to be at the top of the agenda.

The euro rebounded and financial markets reacted early Tuesday after it was learned that European Central Bank President Jean-Claude Trichet was leaving a meeting in Sydney early to fly back for the E.U. meeting.

Germany working on Greek rescue plan: reports