European Authorities and the International Monetary Fund (IMF) are preparing to agree emergency loans for Greece within days of its beleaguered government capitulating to market pressure and seeking to activate the first financial rescue of a euro member.
The European Commission and European Central Bank (ECB) must still decide whether Greece meets conditions for a last-resort loan package that could be worth €30 billion from euro countries in the first year of a three-year programme and €15 billion from the IMF.
But sources briefed on the discussions said activation was now something of a formality after months of relentless pressure on Greece culminated in record borrowing costs this week for the heavily indebted country.
The Greek application for aid creates a knotty problem for German chancellor Angela Merkel, the biggest likely lender to Greece, as she faces stiff public resistance to the rescue and a difficult regional election in a fortnight.
And the Greek government’s capitulation jolted the G20 summit in Washington where finance ministers and central bankers had gathered to discuss financial reform.
After a seven-hour cabinet meeting on Thursday, Greek prime minister George Papandreou travelled to the remote island of Kastelorizo to declare on national television that he wanted to trigger the EU/IMF rescue plan.
In return for aid, he must agree to intensify a swingeing austerity programme that has already brought hundreds of thousands of protesters on to the streets.
Mr Papandreou said he inherited a “sinking ship” when his Socialist administration took office last autumn and blamed the country’s plight on a litany of “incomprehensible mistakes, omissions, criminal decisions and storm of problems” from the previous government.
“The moment has come for us to gain time that markets wouldn’t give us from the decision all the leaders of Europe took together for the support of Greece,” he said.
“The situation threatens to demolish not only the sacrifices of the people but also the regular course of the economy. All the efforts by the Greek people are in danger of being in vain from the even higher borrowing rates and even worse from the difficulty to borrow. We will not allow it.”
Even as Dr Merkel sought to buy time yesterday by saying there would be no aid until it was proven that Greece’s position was a threat to the euro zone’s stability, European Commission chief José Manuel Barroso said the EU wanted the activation to go quickly.
Mr Barroso told reporters in Lisbon that the rescue was a “complex issue” that needed to be “well done” but said he believed there were unlikely to be problems in obtaining euro members’ approval for the aid plan.
Officials at the International Monetary Fund and Europeans attending the summit sounded confident that the €45 billion in loans would be put in place quickly.
“We are prepared to move expeditiously on this request,” said Dominique Strauss-Kahn, the IMF’s managing director. His deputy, John Lipsky, told Bloomberg Radio he was confident that a “coherent, multi-year economic programme of adjustment . . . being negotiated right now in Athens . . . will be put in place, will receive the requisite support that has been pledged”.
Mr Lipsky said the euro group “has been passing the test in the face of scepticism” and that its officials “are acting in a co-ordinated way, in an unprecedented manner in support of Greece”.
The German leader risks losing her power to enact laws in the upper house of parliament in a regional election on May 9th. This comes 10 days before the effective deadline for aid to Greece, which has an €8.5 billion bond falling due on May 19th.
Axel Weber, the head of the Bundesbank, was at pains to distinguish between the Greek crisis and the European currency.
“The euro doesn’t have a problem,” as a result of the Greek deficit, Mr Weber said. Mr Weber told reporters in Washington that “any discussion about a country exiting the monetary union is a fantasy”.