Greece has decided on Friday to surrender to the evidence of its deep financial crisis and has officially requested the activation of the credit aid package designed by the eurozone.
We are facing a difficult path. It is imperative that we ask to activate this mechanism
The decision, announced by Prime Minister Yorgos Papandreou, responds to pressures from international markets for Greece to seek financial aid and guarantee that it will be able to continue to face its payments, given the growing rumors of possible state bankruptcy.
“We are facing a difficult road, and it is imperative that we ask to activate this mechanism,” said Papandréu from the Greek island of Kastelorizo, one of the southernmost points of the European Union.
Greece seems not to have withstood the upward revision that the European Union made on Thursday of its deficit – not considering the data offered by its government to be reliable – and that caused a stock market crash on the day . In addition, the credit rating agency Moodys downgraded Greece’s sovereign debt to “A3”.
Package of 30,000 million
On April 11, the euro countries offered Greece financial resources worth at least 30,000 million euros – of which Spain will contribute 2,000 – in bilateral loans, which will be completed with another 15,000 million contributed by the IMF.
The announcement has pushed up the Athens Stock Exchange by 3.16%
“We hope, and our partners in the European Union hope, that this decision will be enough to calm the markets and that we can continue to finance our country with lower interest rates,” the prime minister said.
For now, the announcement pushed the Athens Stock Exchange up 3.16% and the spread of the Greek ten-year bond in relation to the German “Bund” fell to 493 basis points, although by midday it had rebounded again to 519 basic points.
Papandreou did not specify the volume of credits he will request from his eurozone partners and the International Monetary Fund (IMF), also involved in the rescue operation.
Possible advancement of the IMF
At the moment, Finance Minister Yorgos Papaconstantínu will travel to Washington this weekend to negotiate with IMF Managing Director Dominique Strauss-Kahn about the terms of the credit of up to 15,000 million euros that this body could provide.
Only in May, Greece must disburse 10 billion to meet its obligations
Various scenarios raised by the Greek press already speak of an advance of aid from the IMF of 3,000 million euros at an interest rate of 2.86%.
Only during the month of May, Greece must disburse 10,000 million euros to meet its payment obligations. In total, it is estimated that the country owes about 273,000 million euros, a 115.1 percent of its Gross Domestic Product (GDP).
Papaconstantínu assured that “without a doubt, by May 19, Greece will have 9,000 million euros of capital that it needs for its payments”.
The minister confirmed that he has already spoken by phone with Olli Rehn, European Commissioner for Economic and Monetary Affairs; with the vice president of the European Central Bank (ECB), Lucas Papademos; and with their European counterparts.
The grants, subject to the adjustment plan
For its part, the countries of the euro zone will not approve the financial aid to Greece until the Greek authorities do not close the adjustment plan for the next three years they are negotiating in Athens with representatives of the European Commission, the International Monetary Fund (IMF) ) and the European Central Bank (ECB).
This is clear from a joint communiqué by the Eurogroup presidency, the ECB and the Commission, in which the three parties “take note” of the request made by the Greek Government for the activation of the financial aid mechanism.
“The support will be based on the program currently being prepared by the Commission, the European Central Bank and the International Monetary Fund together with the Greek authorities,” the statement said.
Greece has accumulated a debt of about 300,000 million euros and and a fiscal deficit in 2009 of 13.6% Greece has accumulated a debt of about 300,000 million euros and and a fiscal deficit in 2009 of 13.6%, well above the top fixed by the Treaty of Maastricht for the countries of the euro zone, which places it at 3% of GDP.
However, the European Central Bank (ECB) and president of the Bundesbank, Axel Weber, considered that Greece will need about 80,000 million euros to overcome its financial difficulties and meet its payment obligations, as reported by the newspaper The Wall Street Journal .