ATHENS – Greece asked European governments and the IMF on Friday to trigger billions of euros in emergency loans in what could be the largest state bailout ever attempted.
Prime Minister George Papandreou asked for the 45 billion euro ($60.5 billion) package put together by the European Union and International Monetary Fund to be activated after months of markets pushing Greek borrowing costs ever higher, undermining the country’s efforts to cut its 300 billion euro debt load.
"It is imperative that we ask for the activation of the mechanism," Papandreou said on live national television and radio from the remote Aegean island of Kastellorizo.
European markets rallied on the announcement but investors quickly concluded that the long-awaited bailout would only provide a short-term solution to the Greek debt crisis.
After bouncing initially, the euro slipped to 1.3305.
But the premium investors demand to buy Greek 10-year government bonds rather than euro zone benchmark Bunds tightened to 530 basis points versus 611 basis point at its peak on Thursday.
"This certainly does not mark the end of the crisis, there’s still much further to go. They’ve still got the medium-term problems of getting their public finances in order, and obviously the issue of competitiveness," said Ben May, European economist at Capital Economics.
Time is pressing, with Greece needing assistance before it has to redeem an 8.5 billion euro bond on May 19.
Euro zone officials said it could take a week for the European Commission and European Central Bank to decide if the request was valid and for euro zone finance ministers then to take a formal decision.
"There are no deadlines," Commission spokesman Amadeu Altafaj told a regular news briefing.
Some investors had expressed exasperation with the socialist government which, caught between punishing market forces abroad and Greek workers fearful of painful austerity measures, was hesitant to ask for help.
DOUBTS
Greek bond yields hit 12-year highs on Thursday as doubts about its ability to avoid default intensified when European Commission data showed its large public deficit was even worse than feared and Moody’s Investors Service downgraded its rating of Greek government debt.
The budget figures were announced as tens of thousands of Greek nurses, teachers and other public workers staged a one-day strike against the government’s austerity measures.
Athens still faces some opposition in Germany, where a majority of voters are against helping the long-time budget offending country against the backdrop of a key state election on May 9.
In the runup to the vote, German political parties have expressed resistance to approving the aid in a required parliamentary vote, but senior officials said on Friday it should not jeopardize the rescue package.
"Because Greece would not need all the aid immediately, the International Monetary Fund could supply the first tranche if necessary," a member of the ruling coalition said, speaking on condition of anonymity. "Then European governments could step in depending on how quickly they can approve aid nationally."
Another question is whether the 30 billion euros pledged by euro zone states and 10-15 billion more from the IMF would be enough to cover the 39 billion euros in debt Greece has coming due in the next 12 months, plus other costs forecast in the 2010 budget deficit.
Papandreou, who won an election last year pledging to tax the rich and support the poor, has come under increasing pressure,
A poll showed on Friday his support was declining and that Greeks fear the aid package will hit their living standards.
After winning power last October, his government suddenly announced Greece’s 2009 budget deficit would be twice as big as a previous estimates – and four times the EU ceiling.ATHENS – Greek Prime Minister George Papandreou is about to ask for activation of the EU-IMF debt rescue mechanism, a government source told AFP on Friday.
Papandreou would make the request in a speech on Greek television shortly before Finance Minister George Papaconstantinou leaves for Washington for talks with IMF director general Dominique Strauss-Kahn, the source said.
The three-year stand-by package by the European Union and International Monetary Fund is worth about 45 billion Euros (60 billion dollars) at interest of about 5.0 per cent in the first year.
But experts from the two bodies and the European Central Bank are here to work out details of how the scheme would work.
Shortly before the announcement here, in Berlin German Economy Minister Rainer Bruederle said a knee-jerk reaction to the Greek crisis would be wrong, adding that Athens has not yet reached the point where aid is required.
"We are watching the situation closely and we are taking it seriously. But we will not make a knee-jerk reaction. That would be exactly the wrong reaction," Bruederle told the German parliament.
The members of the eurozone and the International Monetary Fund stand ready to come to Greece’s aid "as a last resort," said Bruederle, whose government has been reticent to help Greece. "Until now, this situation has not happened."
The announcement in Athens came in response to a new wave of pressures on Greece in the form of an EU upgrade of its huge public deficit for last year with possibly more to come because of doubts of Greek data, a ratings downgrade of Greek debt, and a surge in Greek borrowing costs to far above 8.0 per cent.
Analysts on financial markets consider that Greece has no option but to ask for a rescue if it is to avoid default on part of its debt falling due in May, and meet its bills falling due for the rest of the year.
Pressure is also rising on the European Union and eurozone, because the cost of borrowing for Portugal also shot up on Friday. This was seen as a sign by analysts that a risk of contagion to other eurozone countries considered at risk is rising. The euro has fallen to its lowest values against the dollar for 12 months.
The International Monetary Fund warned on Wednesday of a risk that the Greek crisis could spread to other eurozone countries, raising a risk of a sovereign debt crisis.
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