- The Washington Times - Friday, April 23, 2010

ATHENS (AP) — Greek Prime Minister George Papandreou called for the activation of a joint eurozone-International Monetary Fund financial rescue to pull his country out of a major debt crisis.

Saying financial-market pressure threatened to derail Greece’s economy with high borrowing costs, Mr. Papandreou said Friday he had asked Finance Minister George Papaconstantinou to make a formal request for the plan’s activation.

“The moment has come,” Mr. Papandreou said, speaking from the remote Aegean island of Kastelorizo.

Mr. Papaconstantinou sent a letter formally asking for activation of the financial backstop to the finance ministers of the other euro countries, the European Commission and the European Central Bank.

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“Greece is asking for the activation of the support mechanism,” said the letter released by the Finance Ministry.

Mr. Papandreou said it was “a national and pressing necessity for us to formally ask our partners for the activation of the support mechanism, which we jointly created in the European Union.”

In Washington, IMF Managing Director Dominique Strauss-Kahn said his organization will move quickly on Greece’s request for a financial rescue.

“We are prepared to move expeditiously on this request,” sad Mr. Strauss-Kahn, who had previously planned to meet with Mr. Papaconstantinou in Washington on Saturday.

The plan aims to cover Greece’s immediate borrowing needs so it can continue servicing its debt and avoid default. The bailout would have to be reviewed by the European Union executive and the European Central Bank, and needs approval by all 15 of the other governments that use the euro.

Greece was asking for the plan to be activated even though details are still being worked out. “Negotiations are ongoing with the representatives of the IMF and ECB to determine the content and logistics of the plan,” said a Greek government source, speaking on condition of anonymity.

“There can no longer be any credible talk of default,” the source said.

Mr. Papandreou said the markets had not responded positively to Greece’s austerity measures that were designed to pull the country’s disastrous finances into line. The government has blamed the previous conservative administration for mismanaging the country’s finances and fudging statistics in its reports to the EU.

“We inherited a ship that was ready to sink. A country bereft of prestige and credibility, which had even lost the respect of its friends and partners,” said Mr. Papandreou, who came to power in October elections.

Greece and the EU had hoped that the announcement last month of a standby support plan would reassure markets that Greece was not going to default on its massive debt “and make them see reason, so we could continue financing our country with lower interest rates,” the prime minister noted.

However, he said, “markets did not respond. Either because they did not believe in the will of the EU or because some decided to continue speculating. And today, the situation in the markets threatens to deconstruct, not only the sacrifices of the Greek people, but also the smooth course of the economy itself.”

The rescue package would provide Greece with loans from other eurozone countries to the tune of 30 billion euros at interest rates of about 5 percent, and about 10 billion euros from the IMF.

In Berlin, spokesman for German Finance Minister Wolfgang Schaeuble, Michael Offer, stressed that once the Greek request was made, a group of experts, including the ECB and the IMF, would need to confirm whether Greece really needs the aid.

Mr. Offer said Mr. Schaeuble held a telephone conference Thursday with the Greek finance minister, among others, and that during the call, he insisted that Athens’ financial review, being conducted with the IMF, be completed “quickly.”

Mr. Offer sought to fend off domestic criticism from a German public concerned that their tax money is going to bail out another country.

“In Germany, we are required to act out of solidarity, and we will do that in order to stabilize the euro,” he said.

Until now, Greece had insisted it preferred to tap bond markets for its borrowing requirements and avoid calling for a rescue.

But on Thursday, borrowing costs spiraled to alarming and unsustainable levels, pushing interest rates for Greek 10-year bonds to nearly 9 percent. Investors demanded high rates because they viewed Greece as a risky borrower who might not pay.

The spike came after after Moody’s credit agency downgraded the country’s sovereign rating and the European Union’s statistics agency Eurostat revised Greece’s budget deficit in 2009 to 13.6 percent of gross domestic product from 12.9 percent, and said it could be further revised by up to 0.5 percentage points.

The level is more than four times the EU limit set for the 16 countries that use the euro, which has been badly hit by the Greek financial crisis. Athens insisted its target of reducing its deficit by at least 4 percentage points in 2010 remained unchanged.

The interest rate gap, or spread, between Greek 10-year bonds and German ones — considered a benchmark of stability — began to narrow rapidly on the announcement that Athens was asking for the aid, falling to 5.11 percentage points from Thursday’s alarming highs of 5.86 percentage points.

Associated Press writers Melissa Eddy in Berlin and Nicholas Paphitis in Athens contributed.

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