Greece seeks bailout from IMF, EU
<p>Greek Prime Minister George Papandreou announces Greece's decision to request activation of a joint eurozone-International Monetary Fund financial rescue plan, from the main port of the remote southeast Greek Aegean island of Kastellorizo, Friday, April 23, 2010. The plan aims to cover Greece's immediate borrowing needs so it can continue servicing its debt and avoid default. (AP Photo/Tatiana Bolari)</p>
| April 25, 2010 9:00 PM
ATHENS, Greece - Hobbled by exorbitant borrowing costs, Greece triggered an emergency aid plan Friday to draw cash from the International Monetary Fund and countries that use the euro - the first test of whether the EU is prepared to bail out one of its members.
The package has enough money to keep Greece from defaulting on its massive debts anytime soon. But Athens still faces years of painful cutbacks and questions about its long-term finances, raising worries that its troubles will affect other indebted members of the European Union and further harm the euro currency.
The three-year plan adopted in Brussels recently and hailed as a sign that Europe can cope with the crisis will provide Greece with loans: Euro-zone members will contribute $40 billion at interest rates of about 5 percent, while the IMF will chip in about $13.4 billion this year. Exact figures for the following years have not yet been made public.
European governments made the financial assistance 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. It also aims to keep Greece's troubles from spreading to other financially weak euro-zone governments, such as Portugal and Spain.
While the aid would stave off default for now, it 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 other euro-zone countries?
The German public, in particular, has been critical of extending assistance to Greece, as Germany recently emerged from years of stagnant growth that saw painful cuts to people's own pensions and social security benefits. Germany will be the biggest contributor of loans.
Greece is under no illusions that the plan will resolve all the problems of a country that has a debt of $400 billion and other serious fiscal issues. The nation needs to borrow about $72 billion this year alone. It's already covered about half that amount with bond and treasury bill issues, but has $11.3 billion worth of 10-year bonds maturing on May 19.
But Athens hopes the plan, which will allow it to refinance its debt, gives 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," Prime Minister George Papandreou said. "We are on a difficult course."
Papandreou - whose center-left government came to power in October and has blamed the previous administration for mismanaging the economy and fudging Greece's statistics - said the current market situation made it "a national and pressing necessity for us to formally ask our partners for the activation of the support mechanism."
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.