Last night’s $40 billion (30 billion euro) facility developed by the EU may have dampened some of speculation that Greece may default.

Eurozone officials apparently agreed on the main terms of a possible bailout for debt-ridden Greece on Friday.

Government officials maintained then that the country was not seeking the activation of a rescue plan involving European Union (EU) and International Monetary Fund (IMF) loans.

The agreement reached by Saturday morning EU time, it was reported on Reuters that the deal was “almost a carbon copy of International Monetary Fund terms,” which would mean that Greece would borrow a reported 20 to 25 billion euros at a rate of around 5 percent, significantly lower than the 7.5 percent markets were demanding earlier in the week.

The eurozone package agreed to by the members allows for a 30 billion euro facility at 5 percent interest. Pime Minister Papandreou and his Finance Minister Papakostandinou are still maintaining that they will not be calling on the IMF, it seems likely that they may be forced to regadless of the EU bailout.

If Greece calls on the IMF to restructire its loans, it may become the first eurozone country to do so. Last week the Greek financial crisis went ballistic, as the markets lost patience with the EU’s endless efforts to “solve” the crisis, maybe this week they will settle.

The spread on Greek government bonds over German bonds ballooned to more than 4.6 percent and the cost of insuring Greek public debt against the possibility of default rose to prohibitive levels.

At one stage last week, it was costing 470,000 euros to insure 10 million euros of Greek government debt. That and the huge premium over German bonds that investors are demanding to hold Greek government bonds demonstrates that the markets may have lost faith in the EU’s attempts to prevent Greece defaulting on its 300 billion euro debt.

Matters are likely to come to a head next month when Greece needs to roll over 11 billion euro of maturing debt. If last week’s developments are any guide, Greece will only be able to raise this money on usurious terms.

With the yield on 10-year Greek government bonds exceeding 8 percent at one stage this week, the cost of servicing its debt will soar over the next few years, even if it could persuade investors to lend it the money.

Soaring bond yields and a shrinking economy threatens to make a nonsense of the Greek government’s proposals to cut its budget deficit from 12.7 percent to less than 3 percent of that country’s GDP over the next three years.

The Greek financial crisis has opened up the contradiction that lies at the heart of the eurozone.

With no central eurozone treasury, there was always the implicit assumption that the richer EU countries, like Germany, would ultimately come to the assistance of any weaker eurozone country that got into financial difficulty.

This was despite the fact that the 1992 Maastricht Treaty explicitly prohibited such a bailout.

In a media-dominated era every crisis needs a public face and George Papandreou has performed a similar function in the Greek crisis.

With his slick PR and fluent American-accented English Papandreou appears very American.

In fact, he was born in St Paul, Minnesota, in June 1952, the son of Andreas Papandreou and his then wife, American Margaret Chant.

Unlike his father, who despite his American education and wife, always advocated strongly anti-American policies, George Papandreou has always adopted a more emollient tone in his dealings with the United States and other nations.

As foreign minister between 1999 and 2004, he worked hard to improve relations with Turkey.

With Germany seemingly determined to block anything that smacks of an EU bailout and with borrowing costs having risen to prohibitive levels, IMF intervention now seems inevitable.

The IMF would lend money to Greece at a far lower interest rate than it would pay if it borrowed from the either EU or on the open market.

The downside is that in return the IMF would insist on massive spending cuts. Previously announced austerity measures which included such modest steps as freezing public sector and higher fuel and tobacco duties brought hundreds of thousands of people on to the streets.

The tough line being taken by Germany has in turn stoked Greek resentment, where memories of the brutal 1941-44 Nazi occupation are never far beneath the surface. This renewed bitterness means that Greece is unlikely to meekly accept its fate.

If Greece must go to the IMF, what are the chances that it will seek to mitigate the pain by leaving the euro and restoring Greek competitiveness through a lower exchange rate?

Despite the apparent weakness of his position, the smooth-talking Papandreou may hold the fate of the euro in his hands.