Multi-Billion Euro Bailout Becomes Reality Greece Asks for Loans from the EU and IMF
Embattled Greece has finally taken the step it fought so hard to avoid. On Friday, Prime Minister George Papandreou officially asked for billions in aid from the European Union and the International Monetary Fund.
"I have given the request to the Finance Ministry," Papandreou said in a live broadcast shown on Greek television. "It is a national and imperative need to officially ask our partners in the EU for the activation of the support mechanism we jointly created."
His move comes on the heels of negotiations with euro zone nations and the International Monetary Fund over the fine print of a vast bailout package. In mid-April, euro zone finance ministers agreed to offer a €30 billion ($40.8 billion) lifeline to the crisis-plagued county, if Greece needed it. An additional €15 billion would come from the IMF.
Meanwhile, pressure has been piling onto the creaking Greek economy. On Thursday, official data pointed to a budget deficit of 13.6 percent of gross domestic product, even worse than many had expected.
News of the gaping budget deficit pushed the yield on Greek debt above the record 8-percent level, making it ever more costly for Athens to access money on the market. Investor sentiment towards Greece took another hit when credit rating agency Moody's lowered its rating on Greek debt on Thursday.
On Friday, the euro rose above recent lows on reports that Greece was to ask for financial aid.
German Chancellor Angela Merkel stressed that Greece must first complete its discussions with the IMF before it becomes clear exactly how much aid Athens will require. She added that it was therefore too early to establish her nation's contribution to the lifeline.
Germany Faces Hefty Bill
It has been estimated that Germany, as the largest stakeholder in the European Central Bank, will have to contribute over €8 billion to the relief effort. And for Merkel, whose coalition government is facing an important regional election in the state of North Rhine-Westphalia on May 9, that steep bill is becoming reality sooner than she would have liked.
German tax payers are reluctant to support their debt-strapped neighbors, and she and her coalition partners hoped to keep the awkward bailout issue as quiet as possible during the run-up to the election. But that plan has been crushed by the urgency of the Greek predicament.
Speaking on Friday, Merkel stressed that financial aid for Greece would come with "very strict conditions." She specified that this would include a viable savings plan drawn up in talks between Greece and the IMF and given the green light by the European Commission, the European Central Bank and the IMF.
"Only when these two steps have been completed, can we talk about concrete assistance, including what kind of aid and how much," she said.
'Greece Is Like a Bottomless Pit'
Meanwhile, there are fears that Germany may end up paying out even more than originally estimated. Frank Schäffler, a politician with the business-friendly Free Democratic Party (FDP), which shares power in government with Chancellor Angela Merkel's conservatives, warned that the credit may end up at double that estimate. "It is probable that Germany will need to put aside more than €30 billion in credits through the end of 2012," he warned the mass-circulation daily Bild. "Afterwards, it could cost even more. Greece is like a bottomless pit."
Meanwhile, Frank-Walter Steinmeier, who heads the parliamentary group for the opposition center-left Social Democratic Party (SPD), said the scope of German aid to Greece must be clarified before pivotal state elections in North Rhine-Westphalia next month. "The financial markets and the German public need clarity," Steinmeier told the Frankfurter Allgemeine Zeitung newspaper. "But the government is copping out," he added, claiming they didn't want to push a bill for Greek aid through parliament until after the May 9 election.
Instead, Steinmeier called for Merkel and her Christian Democrats to put the legislation on the agenda immediately, saying that his party would be prepared to help find a reasonable solution. "But we will not take part in irresponsible and overly hasty decisions," he said.