Euro partners agree on massive Greek bailout

BRUSSELS - European governments and the International Monetary Fund have committed to pull Greece back from the brink of default, agreeing on €110 billion in emergency loans on the condition Athens make painful budget cuts and tax increases.

The rescue is aimed at keeping Greece from defaulting on its debts and preventing its financial crisis from infecting other indebted countries just as Europe is struggling out of recession.

After chiding Athens for years of mismanagement and cheating on their budget reporting, the IMF and Greece's 15 partners that share the euro currency rewarded Prime Minister George Papandreou for tough measures including cuts in civil servant's pay.

"I have done and will do everything so the country does not go bankrupt," Papandreou told a nation which now faces years of painful belt-tightening after years of overspending.

France, Greece's most sympathetic partner, agreed there was no other choice.

"It's a very harsh plan because there was a lot of laxity," Finance Minister Christine Lagarde said.

But even Germany, long the fiercest critic of Greece's boundless spending, saw the need to back a euro-partner in such dire need - if only to keep the shared currency out of more trouble.

The crisis is already threatening other eurozone countries with huge financial problems, including Portugal and Spain.

"It is not an easy decision but there is no alternative," German Finance Minister Wolfgang Schaeuble said after the eurozone finance ministers approved the package in an emergency meeting in Brussels.

Lagarde also insisted that "everyone has an interest in Greece being stable and trusted."

The plan will still need approval by some countries' parliaments. But the eurogroup head, Luxembourg's Jean-Claude Juncker, said Greece will get the first funds by May 19, when Athens has €8.5 billion worth of a 10-year bond maturing.

Next Friday, the government leaders of the eurozone will convene in Brussels for an extraordinary summit to wrap up the rescue package and look at ways to avoid it in the future.

The new Greek measures include cuts in civil servants' salaries and pensions, and tax increases, including for tobacco and alcohol, that aim to cut the deficit to below 3 per cent of gross domestic product by 2014 from 13.6 per cent now.

"We are called on today to make a basic choice. The choice is between collapse or salvation," George Papaconstantinou said before flying to Brussels.

Violent protests already marked the Labor Day parades in Athens on Saturday and more demonstrations and a nationwide general strike is set for Wednesday.

"These are the harshest, most unfair measures ever enacted. That is why our reaction will be decisive and dynamic. You can't always make the workers pay for the results of failed policies," Stathis Anestis, spokesman for Greece's largest umbrella union, GSEE, told The Associated Press.

Yet with Papandreou's Socialists holding a large parliamentary majority, his austerity plan is unlikely to face obstacles before it is rushed through parliament by Friday.

"Economic reality has forced us to take very harsh decisions," Papandreou said, adding that "This is the only way we will finance our 300 billion debt."

The IMF's lead negotiator in Athens, Poul Thomsen, praised Greece's "draconian reforms" that he said could help "shock and awe markets and re-establish confidence."

Greece was in essence locked out of the normal source for government borrowing, the bond market. Investors were demanding high interest rates the government said it could not pay.

As confidence returns, it is hoped those rates will come down. Still, some economists think Greece, though saved for the moment, will eventually have difficulty paying down its debt load because it has poor prospects for economic growth.

Of the €110 billion in total commitments endorsed Sunday, the eurozone will contribute 80 billion to the package, with €30 billion of that to be made available this year. The rest of the money would come from the Washington, DC-based IMF.

EU Monetary Affairs Commissioner Ollie Rehn said the loans from other eurozone countries to Greece would carry an interest rate of "around 5 per cent."

Because the interest rate is higher than the one those countries face themselves on the market, they could make money out of the rescue package. But the rate is significantly lower than Greece would face if it tried to borrow on the international market, where it has seen its borrowing costs spiral because of investor fears it would default.

"It is a day in which we have the commitment of the Greek government to do whatever it takes to bring the economy back to a sustainable path, and the commitment of the eurozone members to do whatever it takes to safeguard the stability of the eurozone," said Papaconstantinou.


-AP