Describing his country’s economy as "a sinking ship," the Greek prime minister formally requested an international bailout on Friday, an unprecedented step that will test the bonds of the European Union.
In a nationally televised address, Prime Minister George Papandreou said two waves of austerity measures introduced by the government over the past few months "had failed to convince the markets" that Greece would get its finances under control or be able to avert defaulting on a mountain of debt.
"There is the risk of the sacrifices of the Greek people being lost as rates of borrowing continue to rise," he said, speaking from the Aegean island of Kastellorizo.
"The time has come for us to ask our partners in the E.U. to activate the mechanism we formulated together," he said, referring to an emergency aid package arranged two weeks ago. The plan foresees up to 30 billion euros, or $40 billion U.S., in loans from Greece’s euro-zone partners, as well as up to 15 billion euros from the International Monetary Fund.
The activation of the E.U.-IMF rescue plan, Mr. Papandreou said, "will send a strong message to the markets that the E.U. is not playing their game and will not leave its currency at risk."
The announcement means that funding from the IMF can be expedited once the board of the fund has approved the terms. The fund is expected to provide 12 billion euros, according to E.U. officials.
The loans pledged by Greece’s euro-zone partners are still awaiting approval by legislators in some of the countries. French lawmakers, for example, will discuss France’s 21% contribution early next month.
But in Germany, the bailout has proved to be politically unpopular and could face legal challenges before the country’s Constitutional Court.
In Berlin, the Finance Ministry said that the E.U. and IMF must first agree that the aid is needed as a last resort. But he said the German government is "ready to act" to clear the way in parliament.
"We in Germany are pledged to solidarity and we will show it," Mr. Offer told reporters. "We’re doing this to stabilize the euro, which means it’s also in our own national interest."
The European Commission, the European Central Bank and the IMF have been holding talks in Athens to finalize the terms of the aid package, which were expected to be completed next week.
But even with those talks moving ahead investors have been worrying about the country’s financing needs in coming months and years.
Greece needs to raises around 10 billion euros in May to cover redemptions, coupon payments and its primary government deficit, according to investors.
The yield on benchmark 10-year Greek government bonds fell to 8.1% Friday after the reports, having touched fresh record Thursday close to 9%. The euro rose against the dollar after briefly touching the lowest point in a year early in the day.
The Athens composite share index gained almost 4% around midday, with shares in Greek banks surging after their recent sharp declines.
There was no immediate response to a request for comment from the Washington-based IMF.
In his address, Mr. Papandreou did not confirm on widespread speculation in Athens that the release of the loans for Greece would be dependent on additional austerity measures. The two previous packages have already amounted to about 6% of gross domestic product.
Describing Greece's dire economic situation as "a sinking ship" his Socialist administration inherited from the outgoing conservatives last October, Mr. Papandreou said the rescue mechanism would "allow us to rebuild our ship with strong and resilient materials."
On Thursday the European Union revised higher its estimate of the country’s 2009 budget deficit -- meaning that austerity measures being negotiated with the IMF and euro-zone countries might have to bite deeper.
Eurostat, the European Union’s statistics agency based in Luxembourg, raised its estimate of the country’s budget deficit for 2009 to 13.6% of gross domestic product, from the recent Greek government prediction of 12.9%.
The Greek Finance Ministry said in a statement that the announcement by Eurostat did not alter its goal of reducing the deficit by at least four percentage points of GDP in 2010, as laid down in the Greek stability and growth program, which it forwarded to the European Commission for scrutiny.
Meanwhile, Moody's Investors Service, the ratings agency, downgraded the government bond ratings of Greece to A3 from A2 and placed them on review for further possible downgrade in view of the "significant risk that debt may only stabilize at a higher and more costly level than previously estimated."
Even with the decline in yields Friday, investors expect a higher return for holding Greek 10-year debt than equivalent bonds issued by the Philippines and India.
