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Greece asks for EU-IMF bailout
Greece asks for EU-IMF bailout
By ELENA BECATOROS (AP) – 17 hours ago
ATHENS, Greece — Unable to cope with exorbitant borrowing costs, Greece on Friday triggered an emergency aid plan to draw cash from other countries that use the euro and the International Monetary Fund and ease a debt crisis that has weighed on the shared currency.
The package has enough money to keep Greece from defaulting on its massive debts any time soon. But Athens faces years of painful cutbacks, and its long-term finances — as well as whether its troubles will infect other indebted EU members and further harm the euro currency — are still being questioned.
The three-year plan agreed in Brussels recently will provide Greece with loans from other countries using the euro and the IMF. Eurozone members will contribute euro30 billion ($40 billion) at interest rates of about 5 percent, while the IMF will chip in about euro10 billion in 2010. Exact figures for the following years have not yet been made public.
The plan must be reviewed by the European Union executive and the European Central Bank, and needs approval by all 15 other eurozone countries.
The market situation "threatens to deconstruct, not only the sacrifices of the Greek people, but also the smooth course of the economy itself," Prime Minister George Papandreou said, speaking from the remote Aegean island of Kastelorizo as he announced his decision to call for the aid.
Papandreou said his center-left government, which came to power in October elections and has blamed the previous administration for mismanaging the economy and fudging Greece's statistics, "inherited a ship that was ready to sink. A country bereft of prestige and credibility, which had even lost the respect of its friends and partners."
The current market situation now made it "a national and pressing necessity for us to formally ask our partners for the activation of the support mechanism," he said.
European governments made the financial backstop available to fend off a Greek default, which would deal a serious blow to the euro currency, shake market confidence and inflict losses on banks that invested in Greek bonds. The aid also aims to keep Greece's troubles from spreading to other financially weak eurozone governments, such as Portugal and Spain.
The aid would stave off default for now, but raises more questions: will other governments ask for a bailout, and will assuming the financial burdens of Greece mean shakier finances and higher borrowing costs for the euro zone countries.
Greece's efforts to pay are clouded for the long term because its prospects for economic growth are weak, and because as a euro member it no longer has its own currency to devalue — a painful but quick safety valve that can improve a troubled country's trade competitiveness.
Athens had faced ever increasing borrowing costs, which reached the dizzy and unsustainable levels of nearly 9 percent for 10-year bonds Thursday — about three times what EU heavyweight Germany has to pay.
The record highs came after the European Union's statistics agency revised the country's 2009 deficit figure upwards to 13.6 percent of gross domestic product from an already high 12.9 percent, and said it could be further revised by up to 0.5 percentage points. A downgrade of the country's sovereign rating by Moody's credit agency made things worse.
"The activation of the bailout funds was highly expected and it should result in an easing of the pressure on the Greek government," said IHS Global Insight senior economist Diego Iscaro.
"However, we are concerned that bond yields will still remain high," he said, noting the exact details of the plan's implementation were still unclear, and that "markets will still be concerned about the long-term sustainability of Greece's public finances."
EU spokesman Amadeu Altafaj Tardio said that now Greece had put forward a request for EU financing, the finance ministers of the 16 eurogroup nations will likely meet "in a matter of days," instead of the 2-3 weeks initially estimated.
Athens is under no illusions that the plan will resolve all the problems of a country that has a debt of euro300 billion and serious fiscal problems. Greece needs to borrow about euro54 billion ($72 billion) this year alone. It's already covered about half that amount with bond and treasury bill issues so far, but has euro8.5 billion worth of 10-year bonds maturing on May 19.
But Athens hopes the plan, which will allow it to refinance its debt, will give it breathing space to push through tough reforms. It is already implementing a harsh austerity program that cuts civil servants' pay, freezes pensions and hikes taxes.
"Our partners will assist us, immediately and decisively, in order to give Greece the safe haven that will allow us to rebuild our ship with sturdy and reliable materials. As well as sending a strong message to the markets that the EU is not playing and is protecting our common interests and our common currency," Papandreou said. "We are on a difficult course."
In Washington, IMF head Dominique Strauss-Kahn said the fund was "prepared to move expeditiously on this request."
Greek trade unions reacted with dismay and vowed to step up strike action, with the head of Greece's umbrella civil servant union saying the conditions likely to be set for the aid package made the request "a negative development."
"Social resistance and accelerated strike action form the course that can provide hope and certainty in our life," Spyros Papaspyros said. His union, ADEDY, plans a protest rally against the IMF on Tuesday.
German Chancellor Angela Merkel, who had resisted bailing Greece out, said Greece must finish its talks with the IMF before decisions can be made on how much aid Athens will receive. Germany will be the biggest contributor of loans: euro8.37 billion as Germany holds 27.92 percent of the shares of the European Central Bank.
Merkel said Papandreou, with whom she spoke on Friday, told her that talks with the IMF will take "a couple of days."
She stressed that any assistance would be tied to "very strict conditions," including a savings plan drawn up in talks between Greece and the IMF and the approval of the European Commission, the European Central Bank, and the IMF.
Merkel defended the assistance, however, calling it necessary to ensure the stability of the 16-nation eurozone.
Finance Minister Wolfgang Schaeuble echoed Merkel's call for patience until Greece's talks with the IMF are done.
On the phone he asked his Greek counterpart before this morning's announcement if they didn't want to wait a little longer, Schaeuble said.
"They know that the EU Council can't decide as of now," he said, adding that he did not expect any decision in the coming days.
The German public has been critical of extending assistance to Greece, as it recently emerged from years of stagnant growth that saw painful cuts to their own pensions and social security benefits.
Associated Press writers Melissa Eddy in Berlin, Martin Crutsinger in Washington, Robert Wielaard in Brussels and Derek Gatopoulos and Nicholas Paphitis in Athens contributed.
Copyright © 2010 The Associated Press. All rights reserved.
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