Athens asks for activation of rescue package

Greek Prime Minister calls for eurozone bailout

Published April 23, 2010 12:24PM (EDT)

Greek Prime Minister George Papandreou called for the activation of a joint eurozone-International Monetary Fund financial rescue to pull his country out of a major debt crisis.

Saying financial-market pressure threatened to derail Greece's economy with high borrowing costs, Papandreou said he had asked Finance Minister George Papaconstantinou to make a formal request for the plan's activation.

"The moment has come," Papandreou said, speaking from the remote Aegean island of Kastelorizo.

Papaconstantinou sent a letter to the eurogroup, European Commission and the European Central Bank on Friday formally asking for the activation of the plan.

"Greece is asking for the activation of the support mechanism," said the letter released by the Finance Ministry.

Papandreou, speaking from the remote Aegean island of Kastelorizo, said it was "a national and pressing necessity for us to formally ask our partners for the activation of the support mechanism, which we jointly created in the European Union."

Papandreou said the markets had not responded positively to Greece's austerity measures that were designed to pull the country's disastrous finances into line. He blamed the previous conservative government for mismanaging the country's finances and fudging statistics in its reports to the EU.

"We 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," said Papandreou, who came to power in October elections.

The plan aims to cover Greece's immediate borrowing needs so it can continue servicing its debt and avoid default. The bailout would have to be reviewed by the European Union executive and the European Central Bank, and needs approval by all 15 of the other governments that use the euro.

Greece and the EU had hoped that the announcement last month of a standby support plan would reassure markets that Greece was not going to default on its massive debt "and make them see reason, so we could continue financing our country with lower interest rates," the prime minister noted.

However, he said, "markets did not respond. Either because they did not believe in the will of the EU or because some decided to continue speculating. And today, the situation in the markets threatens to deconstruct, not only the sacrifices of the Greek people, but also the smooth course of the economy itself."

The rescue package would provide Greece with loans from other eurozone countries to the tune of euro30 billion at interest rates of about 5 percent, and about euro10 billion from the IMF.

Until now, Greece had insisted it prefered to tap bond markets for its borrowing requirements and avoid calling for a rescue.

But on Thursday, borrowing costs spiralled to alarming and unsustainable levels, pushing interest rates for Greek 10-year bonds to nearly 9 percent. Investors demanded high rates because they viewed Greece as a risky borrower who might not pay.

The spike came after after Moody's credit agency downgraded the country's sovereign rating and the European Union's statistics agency Eurostat revised Greece's budget deficit in 2009 to 13.6 percent of gross domestic product from 12.9 percent, and said it could be further revised by up to 0.5 percentage points.

The level is more than four times the EU limit set for the 16 countries that use the euro, which has been badly hit by the Greek financial crisis. Athens insisted its target of reducing its deficit by at least 4 percentage points in 2010 remained unchanged.

The interest rate gap, or spread, between Greek 10-year bonds and German ones -- considered a benchmark of stability -- began to narrow rapidly on the announcement that Athens was asking for the aid, falling to 5.11 percentage points from Thursday's alarming highs of 5.86 percentage points.

In Berlin, spokesman for German Finance Minister Wolfgang Schaeuble, Michael Offer, told reporters at noon Friday that Germany had not received a request from Greece, but if it were to arrive, "then the German government will be immediately ready to take action."

Offer stressed that once the request had been issued, then a group of experts, including the European Central Bank and the IMF, would need to confirm whether Greece really needs the aid.

Offer said Schaeuble held a telephone conference Thursday with the Greek finance minister, among others, and that during the call, he insisted that Athens' financial review, being conducted with the IMF, be completed "quickly."

Offer sought to fend off domstic criticism from a German public concerned that their tax money is going to bail out another country.

"In Germany, we are required to act out of solidarity, and we will do that in order to stablize the euro," he said.

Frank Schaeffler, a member of parliament financial expert with the Free Democrats, told Germany daily newspaper Bild on Friday that "it is likely that Germany will have to provide more than euro30 billion in loans until the end of 2012. After that, it could be even more."


Associated Press writers Melissa Eddy in Berlin and Nicholas Paphitis in Athens contributed.

By Elena Becatoros

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