Greece pleads for debt aid, Germany sets conditions

23rd April 2010, Comments 0 comments

Greece appealed on Friday for tens of billions of euros in unprecedented help from the EU and IMF to end its debt crisis but Germany warned that aid would only come if the euro was threatened.

Prime Minister George Papandreou told Greeks in a televised speech that the aid was a "national need" after the previous conservative government had left the country a "sinking ship".

Finance Minister George Papaconstantinou said he expected no problem in getting the aid and that it should be available in "a few days".

But German Chancellor Angela Merkel, whose government has been reluctant to help Greece, declared that the rescue package would be activated only if the stability of the euro were threatened and Athens implemented tough policies.

Merkel spoke after the EU said it did not see any "obstacles" and would give "rapid" treatment to the request to activate a three-year debt rescue worth up to about 45 billion euros (60 billion dollars) in the first year at concessionary interest rates of about five percent.

International Monetary Fund head Dominique Strauss-Kahn said the fund would "move expeditiously."

The Greek debt drama has mushroomed into the biggest crisis in the euro's 11-year history, sparking concerns that it could spread to other weak members of the single currency area battling runaway deficits and debt.

IMF involvement would also be a first -- the Fund has helped out other EU members such as Hungary but the eurozone is supposed to be policed and its rules enforced by the European Central Bank and member states.

Critics have suggested that such an IMF role now undermines the credibility of the eurozone, which faces a make or break choice over who actually runs its affairs given perceived differences between Paris and Berlin.

Athens' dramatic appeal removed a big slice of damaging uncertainty in financial markets but the initial positive impact was muted in turn by concerns, stoked by Merkel's comments, over how the rescue will be implemented.

"There are still doubts about implementation of the plan while markets will still be concerned about the long-term sustainability of Greece's public finances," said Diego Iscaro of the IHS Global Insight consultancy.

"Moreover, the economic situation still remains worrying," Iscaro said, noting that the Greek economy would shrink 2,6 percent this year after 2.0 percent in 2009.

In late London trade Friday, the euro was at 1.3362 dollars, up from 1.3289 dollars in New York late on Thursday and a near one year-low of 1.3202 dollars in Asian trade.

Yields, the rate of return, on Greek government 10-year bonds was at 8.66 percent in late trade, down from 8.78 percent on Thursday but well off levels below eight percent seen when the news first came through.

Papandreou made his plea before a nation facing unprecedented austerity and just the day after the latest in a series of strikes against his reforms.

"The activation of the (EU-IMF aid) mechanism is a national need," Papandreou said. "Our partners will do what is necessary to offer us a safe port to allow our boat to float again."

This would send a message to the markets that the European Union "is protecting the euro", he said. "Today the situation in the markets risks ... squandering not only the sacrifices made by Greeks but also the normal functioning of the economy due to the high interest rates."

Merkel meanwhile insisted that "Greece must play its part in ensuring that Greece's finances return to a solid path ... The stability of our currency is the first priority."

French Finance Minister Christine Lagarde, whose government has been more supportive of Athens, said Papandreou's announcement "indicates that the process is launched".

The United States backed Greece's application, White House spokesman Robert Gibbs said, adding that the Treasury Department was "closely monitoring" the situation.

Greece remains for the moment in a desperate state, with its credibility fatally undermined by a series of statements showing that it has misreported key data for the eurozone since it joined in 2001.

The country has an overall public debt of about 300 billion euros (399 billion dollars) -- or twice the debt of Britain, a far bigger economy -- while its public deficit is more than four times EU norms.

© 2010 AFP

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