Greece to seek EU-IMF debt bailout: government source

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Greek Prime Minister George Papandreou is about to ask for activation of the EU-IMF debt rescue mechanism, a government source told AFP on Friday.

Papandreou would make the request in a speech on Greek television shortly before Finance Minister George Papaconstantinou leaves for Washington for talks with IMF director general Dominique Strauss-Kahn, the source said.

The three-year stand-by package by the European Union and International Monetary Fund is worth about 45 billion euros (60 billion dollars) at interest of about 5.0 percent in the first year.

But experts from the two bodies and the European Central Bank are here to work out details of how the scheme would work.

Shortly before the announcement here, in Berlin German Economy Minister Rainer Bruederle said a knee-jerk reaction to the Greek crisis would be wrong, adding that Athens has not yet reached the point where aid is required.

"We are watching the situation closely and we are taking it seriously. But we will not make a knee-jerk reaction. That would be exactly the wrong reaction," Bruederle told the German parliament.

The members of the eurozone and the International Monetary Fund stand ready to come to Greece's aid "as a last resort," said Bruederle, whose government has been reticent to help Greece. "Until now, this situation has not happened."

The announcement in Athens came in response to a new wave of pressures on Greece in the form of an EU upgrade of its huge public deficit for last year with possibly more to come because of doubts of Greek data, a ratings downgrade of Greek debt, and a surge in Greek borrowing costs to far above 8.0 percent.

Analysts on financial markets consider that Greece has no option but to ask for a rescue if it is to avoid default on part of its debt falling due in May, and meet its bills falling due for the rest of the year.

Pressure is also rising on the European Union and eurozone, because the cost of borrowing for Portugal also shot up on Friday. This was seen as a sign by analysts that a risk of contagion to other eurozone countries considered at risk is rising. The euro has fallen to its lowest values against the dollar for 12 months.

The International Monetary Fund warned on Wednesday of a risk that the Greek crisis could spread to other eurozone countries, raising a risk of a sovereign debt crisis.

© 2010 AFP

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