Greece received a €14.5 billion loan from the European Union today and can now repay its immediate debt, but still faces a mammoth task to claw its way out of recession.
Concerns that other EU countries such as Portugal and Spain could follow Greece and need aid from the bloc have hit the euro, while investors are still watching Athens to see whether its austerity plan will stave off the prospect of default.
The EU and IMF agreed at the beginning of the month to lend Greece €110 billion over three years to help it pay billions in expiring debt after being shut out of financial markets by the high cost of borrowing.
With €5.5 billion euros already delivered by the IMF, Greece has now received the first €20-billion tranche of the loans, the Greek Finance Ministry said in a statement.
Athens now can and will repay an €8.5 billion 10-year euro bond which matures tomorrow, a government official said.
Greece will be paying interest of around 5 per cent, far below current market yields of well over 7 per cent for Greece's 3-year bonds.
Though it has gained a breathing space, Greece must now convince markets it can rein in its deficits so that it can eventually start borrowing again.
"The programme has been designed so that Greece is able to stay away from the financial markets through the end of 2011 and the first quarter of 2012. We don't expect that to be the case, we want to come back to markets much sooner," finance minister George Papaconstantinou said in Brussels.
Prime minister George Papandreou's government has already implemented sizeable public sector wage cuts and raised taxes in return for the EU/IMF bailout.
In response, large and sometimes violent protests have swept the Greek capital, and a general strike and another mass demonstration have been called for Thursday.
But the government still has more painful measures in the pipeline such as pension reform, and cuts in spending and red tape to boost competitiveness.
Investors are closely watching whether Greeks will swallow the bitter austerity pill, or whether the wave of public anger continues to rise, and if it does, how well Mr Papandreou stands up to the pressure to transform the consumer-driven economy.
Greece aims to cut its deficit from nearly 14 per cent of GDP to 3 per cent by 2014, a task the like of which almost no government has achieved before. An economy deep in recession, with GDP projected to contract by 4 per cent this year, makes the job even harder.
Reuters