Greece pleads for debt aid, Germany warns of conditions

23rd April 2010, Comments 0 comments

Greece appealed on Friday for tens of billions of euros in urgent 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 history of the euro, sparking concerns that it could spread to other weak members of the single currency area battling runaway deficits and debt.

The dramatic appeal for help removed a big slice of damaging uncertainty in financial markets. But the interest rate Greece must pay to borrow shot back up after an initial fall, amidst market scepticism about how a rescue will actually be implemented.

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

An issue of 10-year Greek bonds totalling 8.5 billion euros expires on May 19 and needs to be covered by fresh finance.

"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," he said.

This would send a message to the markets that the European Union "is protecting the euro," he said, railing against the previous conservative government and speculators.

"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," he said.

The Socialist prime minister, elected in October, accused the previous government of making "criminal choices."

Eurozone countries have been divided over how to deal with Greece, with Germany insisting that Athens should first clean up its financial house.

"Greece must play its part in ensuring that Greece's finances return to a solid path," Merkel said "The stability of our currency is the first priority ... and the savings plans absolutely have to be credible."

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

But Greece is in a desperate dilemma and its credibility has been fatally undermined by a series of statements showing that it has misreported key data for the eurozone ever since it gained access as an early member.

The country has overall public debt of about 300 billion euros (399 billion dollars) -- or twice the debt of Britain, a far bigger economy.

The interest rate on Greek debt dropped sharply minutes after the Papandreou's announcement but soon moved back up above 8.5 percent, a prohibitive rate at which to borrow more money. The euro, however, recovered after an initial fall.

The appeal for aid capped a turbulent week in which the EU said the Greek public deficit was bigger than expected at 13.6 percent of Gross Domestic Product instead of 12.9 percent and a new debt downgrade by Moody's credit ratings agency.

Analysts have cautioned for months that the Greek fiscal crisis could spill over to other weak eurozone economies, a warning German central banker Axel Weber reiterated on Friday.

"The risk of contagion has increased over the last weeks," Weber said.

"Many countries are running excessive budget deficits."

© 2010 AFP

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