Greece grasps for €30bn rescue packag/Eurozone’s landmark moment: Greece appeals for emergency aid

Greece grasps for €30bn rescue package
By Tony Barber in Brussels and Kerin Hope in Athens and Gerrit Wiesmann in Frankfurt
Copyright The Financial Times Limited 2010
Published: April 23 2010 12:07 | Last updated: April 23 2010 19:36
http://www.ft.com/cms/s/0/35fe6cfe-4ec7-11df-abb5-00144feab49a.html


Greece bowed to overwhelming pressure from financial markets on Friday and appealed for emergency eurozone loans in what will be the first rescue of a euro area country.

Greece’s socialist government said the prospect of financial collapse had forced it to ask for the activation of a €30bn ($40bn) lifeline that could ultimately be worth €45bn once a contribution from the International Monetary Fund is included.

The request marked a defining moment for the European Union, whose ambitions to play a more prominent role in world affairs rest partly on a claim of successful economic integration that the Greek debt crisis has thrown into doubt.

“We believe our European partners will act decisively and provide Greece with a safe haven to rebuild our ship of state with strong and reliable materials,” George Papandreou, prime minister, told the Greek nation in a live televised address from the Aegean island of Kastellorizo.

Athens is expected to spell out how much it wants from its 15 eurozone partners in a letter to the European Commission and the European Central Bank, which will assess if the request is valid. Eurozone finance ministers will then study the request and, if satisfied, approve the aid.

Greece must refinance €8.5bn in bonds that mature on May 19, and interest rates on Greek debt reached cripplingly high levels on Thursday. They remained high in spite of some market relief that Greece had requested the bail-out.

Negotiations with a team from the Commission, ECB and IMF are due to be completed on May 6 but much uncertainty surrounds the disbursement of the loans. Germany’s centre-right coalition government faces a difficult state election in North Rhine-Westphalia on May 9 and is sensitive to the risk of a backlash from voters angry that German taxpayers should bail out profligate Greeks.

Some German politicians said that it was therefore possible that the first tranche of aid might come from the IMF rather than Germany, whose final contribution could go as high as €8.4bn.

Angela Merkel, the chancellor, said any aid would be tied to “very strict conditions”, which would force Athens to present “an absolutely credible savings programme”, and allow the IMF, EU Commission and ECB to determine that a rescue was “needed for the euro’s stability”.

“Only when these two conditions are met, can we talk about specific aid, including the kind of aid and the amount,” Ms Merkel said.

The IMF is likely to demand tougher austerity measures than Mr Papandreou adopted in his 2010 budget.

Greek trade union leaders warned that they would strike in early May to protest against any new measures that threatened salaries, pensions and employment rights. “This mechanism adds to the threat that workers’ rights are about to be overturned. We will take the road of social resistance and increased mobilisation,” said Spyros Papaspyros, head of Adedy, the public sector union.

SINK OR SWIM . .  

George Papandreou, Greece’s prime minister, chose to announce his decision to activate the eurozone rescue package from the remote and picturesque Aegean island of Kastellorizo, 2km off the coast of Turkey, writes Kerin Hope in Athens.

Rather than staying in the capital to address the nation, he took time out from his trip to Kastellorizo and Rhodes to make a five-minute live broadcast from a picture-postcard harbour overlooked by colourfully painted neo-classical mansions.

One aide said the prime minister “saw no reason” to change his plans for the weekend after discussing Greece’s worsening economic plight at an emergency cabinet meeting on Thursday.

The aide said Mr Papandreou wanted to go to Greece’s farthest-flung island before next month’s visit to Athens by Recep Tayyip Erdogan, Turkey’s prime minister.

Kastellorizo’s residents – fewer than 500 – are largely dependent on Turkish services and supplies because of the island’s isolated position. By boat, the island is five hours from Rhodes in good weather. There are no direct flights to Athens and those to Rhodes are irregular, say residents.

Mr Papandreou promised, in last year’s election campaign, to continue travelling round the country if he became prime minister, to discuss the problems of small communities in isolated regions.

Anna Diamantopoulou, the education minister and former European commissioner for social affairs, and Louka Katseli, economic development minister, helped persuade the prime minister to make his broadcast outside in a stunning setting that would partly offset his gloomy message.



Eurozone’s landmark moment: Greece appeals for emergency aid
by Tony Barber
April 23, 2010 11:35am
Copyright The Financial Times Limited 2010
http://blogs.ft.com/brusselsblog/2010/04/eurozones-landmark-moment-greece-appeals-for-emergency-aid/


George Papandreou, Greece’s socialist prime minister, is an honourable and courageous politician who has done a great deal in his career to improve his country’s image in the eyes of its European Union partners. So it cannot have been easy for him to announce today that he was requesting the activation of the €40bn-€45bn eurozone-International Monetary Fund financial rescue package for Greece.

No eurozone member-state has suffered such a humiliation since the euro’s launch in January 1999. But Papandreou must have feared, as soon as he took office after last October’s election, that emergency foreign assistance was going to be necessary.

The Greek public finances were in even more desperate condition than anyone could have guessed. The 2009 budget deficit, it was revealed on Thursday, was 13.6 per cent of gross domestic product - and may turn out to have been even higher. The 2009 public debt amounted to a colossal 115.1 per cent of GDP, up sharply from 99.2 per cent in 2008.

The fundamental causes of this mess lie in Greece itself, and it is to Papandreou’s credit that he has not been afraid to say this to his countrymen in one public appearance after another since he took over as premier. He also won the respect of his fellow EU leaders by acknowledging frankly at a summit in December that corruption was at the core of Greece’s problems.

As Papandreou knows, this is where Greeks really need to take a hard look at themselves and the way they have behaved, especially in matters of taxation, public sector contracts and employment in the state administration, for many decades. His government has introduced severe austerity measures, and it can now count on massive financial support from Europe and the IMF. But all this will count for nothing if Greeks don’t make an honest effort at cleaning up their act.

And the truth is, this is a challenge that will last an entire generation.