Merkel’s rescue plan warning

THE desperate plea for international monetary aid by Greek Prime Minister George Papandreou would only come if the stability of the euro was threatened and Greece implemented tough new policies, German Chancellor Angela Merkel warned yesterday.

Papandreou told Greeks in a televised speech that the aid was a “national need” after the previous conservative government had left the country a “sinking ship”.

Finance Minister George Papaconstantinou said he expected no problem in getting the aid and it should be available in “a few days”.

But Merkel declared that the rescue package would be activated only if the stability of the euro were threatened and Athens implemented tough policies.

Merkel spoke after the EU said it did not see any “obstacles” and would give “rapid” treatment to the request to activate a three-year debt rescue worth up to about €45 billion in the first year at concessionary interest rates of about 5%.

International Monetary Fund head Dominique Strauss-Kahn said it would “move expeditiously”.

The Greek debt drama has sparked concerns that it could spread to other weak members of the single currency area battling runaway deficits and debt.

The dramatic appeal removed a big slice of damaging uncertainty in financial markets. But the interest rate Greece must pay to borrow shot back up to a prohibitive 8.5% after an initial fall, amidst market scepticism about how a rescue will be implemented.

Papandreou made his plea before a nation facing unprecedented austerity, a day after the latest in a series of strikes against reforms.

An issue of 10-year Greek bonds totalling €8.5bn expires on May 19, and must be covered by fresh finance.

“The activation of the (EU-IMF aid) mechanism is a national need,” Papandreou said. “Our partners will do what is necessary to offer us a safe port to allow our boat to float again.” This would send a message to the markets that the EU “is protecting the euro”.

Eurozone countries have been divided over how to deal with Greece, with Germany insisting that Athens should first clean up its financial house.

“Greece must play its part in ensuring that Greece’s finances return to a solid path,” Merkel said. “The stability of our currency is the first priority.”

French Finance Minister Christine Lagarde, whose government has been more supportive, said the announcement “indicates that the process is launched”.

Greece is in a desperate dilemma and its credibility has been fatally undermined by a series of statements showing that it has misreported key data for the eurozone since it gained access as an early member.

The country has overall public debt of about €300bn — or twice the debt of Britain.

The aid appeal capped a turbulent week in which the EU said the Greek public deficit was bigger than expected at 13.6% of GDP instead of 12.9% and a new debt downgrade by Moody’s credit ratings agency.

Papandreou’s call to activate a financial rescue plan by the eurozone and IMF, refers to a plan agreed in Brussels recently to provide loans from other eurozone countries totalling €30bn at interest rates of about 5%, and about €10bn from the IMF, in 2010. It aims to cover Greece’s immediate borrowing needs.

The bailout has to be reviewed by the European Union executive and the European Central Bank, and needs approval by all 15 of the other countries that use the euro.