BBC News | Friday, 23 April 2010 | 11:33 GMT
Greek Prime Minister George Papandreou has asked for activation of an EU-IMF debt rescue mechanism, to help pull the economy out of its current crisis. It follows negotiations with eurozone nations and International Monetary Fund over the details of an emergency rescue package. It comes a day after data showed a worse-than-expected budget deficit of 13.6% of gross domestic product. Credit rating agency Moody’s also cut its rating on Greek debt on Thursday.
The BBC economics editor Stephanie Flanders said that during the Greek crisis eurozone finance ministers had been hoping that the promise of support would be enough to reassure investors. But that had not been the case, and our correspondent said the pressure was now on to come up with the fine detail of a deal very quickly. She said that, with very tight economic conditions already in place in Greece, any IMF conditions attached to loans would likely be of an economic nature, such as interest rates, rather than calls for more stringent cost-cutting measures. "Even if Greece, with this money does get through [the crisis], it is still going to hurt for sure," she added.
Mr Papandreou is visiting the Aegean island of Kastellorizo where he made a statement to Greek television. He said the markets had not responded positively to Greece’s austerity measures. That meant it was now a "national and pressing necessity" to access the EU-IMF aid, and that he had asked Finance Minister George
Papaconstantinou to make a formal request for the loan plan’s activation. "Our partners will decisively contribute to provide Greece the safe harbour that will allow us to rebuild our ship," added Mr Papandreou.
Greece has sent a letter to the European Commission, the European Central Bank and the Eurogroup representing other Eurozone countries "formally requesting the activation of the support mechanism". The European Commission said eurozone finance ministers would release emergency loans to Greece only after the commission and the European Central Bank ruled that the Greek aid request was valid. Other eurozone states and the IMF will also need to give their approval before funds are released.
The euro rallied in late morning trade in London, up 0.1% at $1.3308. But analysts said even though the Greek move had been expected there was still some uncertainty ahead. "I don’t necessarily think we’re out of the woods here because there’s a fair bit of wrangling to go in terms of how much the package is going to be, and the terms that are going to be attached to it," said Sean Maloney, an interest rate strategist at Nomura. "I think the reaction we’ve seen so far is understandable but whether it extends another significant amount from here is another question."
The loans package has been put together to help pull the eurozone member out of its debt crisis. Greece is swamped by 300bn euros of debt and needs to borrow about 54bn euros this year alone. In the middle of April finance ministers of the 16 eurozone nations agreed to provide up to 30bn euros (£26bn) in emergency loans for debt-hit Greece should it ask for them. At the time they offered a three-year financing programme at interest rates of about 5%, based on IMF formulas. Meanwhile, spending cutbacks being introduced by Athens to restore its finances are being resisted. On Thursday, tens of thousands of Greek civil servants staged a strike to protest against the austerity programme. Protesters have been demonstrating in Athens, not far from where officials from the IMF and European Central Bank are meeting to determine the fine details of a financial rescue package for Greece.