Greece Asks For EU/IMF Rescue Package
Last updated (GMT/UTC): 23.04.2010 13:10
Greek Prime Minister George Papandreou has asked the European Union and International Monetary Fund (IMF) to help bail his country out of its ever deepening financial crisis.
Papandreou said activating the 45-billion-euro ($60 million) rescue package -- a first for the eurozone -- was "a national and imperative need."
He spoke in a live broadcast as he visited the remote Aegean island of Kastellorizo.
The IMF said almost immediately afterward that it would move "expeditiously" to provide the aid. The European Commission said it also would act "rapidly" and without "any obstacles."
The request comes as Greek, IMF, and EU officials are meeting in Athens this week about the rescue package, which was agreed upon last month.
Until today, the three-year package was intended to be kept on standby for Greece and not used unless absolutely necessary. It is intended to provide Greece with much-needed cash at lower-than-market interest rates to prevent default.
Greece needs some 54 billion euros this year alone, as it struggles not to default on debts totaling some 300 billion euros.
Analysts say that the bailout should stabilize Greece in the short run and reassure investors not to abandon the country. But it is just the start of a longer process for Greece to gets its house back in order:
Ben May, a specialist in European economies at the London-based Capital Economics, says in the short term "at least it will help in that markets may become a little less concerned about the ability of Greece to pay its debts."
"But nonetheless, various other problems remain for Greece, for instance, it has still got a huge budget deficit which it is going to have to reduce quite sharply and the level of debt is at incredibly high levels," May says.
In the past 24 hours, it has become obvious that Greece cannot dig its way out of debt by continuing its current strategy of raising money by selling government bonds.
On April 22, any remaining investor confidence in Greek government bonds collapsed under two heavy and simultaneous blows.
The first was an announcement by the EU statistics agency, Eurostat, that it had issued new figures revising upward its estimate of Greece's 2009 budget deficit. By the new estimate, the deficit equals 13.6 percent of Greece's gross domestic product.
That is much higher than the earlier estimate of 12.9 percent, and a full four times higher the EU limit set for the 16 countries that use the euro.
Shortly afterward, a major international service that evaluates financial risk for investors, Moody's Investor Services, downgraded its rating on Greece's debt by one notch to A3 from A2.
That meant Moody's considers Greece increasingly less able to pay back investors who are now lending it money by buying Greek government bonds.
Before April 22 was over, IMF Managing Director Dominique Strauss-Kahn, said in Washington that the "Greek situation is a very serious one and we're very much concerned." Strauss-Kahn said the fund will "move expeditiously" on the Greek bailout request.
The European Commission said it foresaw "no obstacles" to disbursing the aid.
As Strauss-Kahn spoke, investors reeling from the news about the Greek economy were already demanding increasingly high interest rates to buy the country's bonds. The interest rate on 10-year bonds went over 8.7 percent -- an amount difficult for a country to afford for long.
The question now is how much Greece's admission of defeat today will shake investor confidence in the eurozone and its currency as a whole.
Jeorg Radeke of the Center for Economics and Business Research in London says the main aftershock of the Greek bailout may be that it will reinforce private investors' fears about buying the government bonds of other deficit-bound governments, both in the EU and elsewhere.
He tells RFE/RL that may force some governments to pay higher interest to attract bond buyers, taking them further down the same road that Greece has just traveled so unsuccessfully.
The cost of borrowing for Portugal, widely seen as the second most-troubled EU economy after Greece, rose today.
In recent days, the worsening fears about Greece's fiscal health have already pushed the euro to lows against the dollar that have not been seen for nearly a year.
The euro fell as low as $1.3202 in New York trading overnight -- a low last seen in May 2009. The euro later recovered slightly upward to $1.3230.
Today, investors are reacting positively to the news of the EU/IMF bailout of Greece. The euro jumped up to $1.3315 in early trading.
But it remains to be seen how the market will regard the euro in the longer term, now that -- for the first time in the eurozone's history -- a member country has needed such help.
The worries about European debt have helped strengthen the dollar in recent months, pushing it up nearly 5 percent this year.
with agency reports
Copyright (c) 2010. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036.
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