Greece handed €30bn lifeline

Struggling Greece was handed a financial lifeline by fellow eurozone governments today.

They pledged to make €30bn in loans available this year alone – if Athens asks for the money.

The International Monetary Fund stands ready to chip in another €10bn, said Olli Rehn, the EU monetary affairs chief in Brussels.

The promise – filling in details of a March 25 pledge of joint eurozone-IMF help – was another attempt to calm markets that have been selling Greek bonds in recent days.

Markets viewed the March pledge as too vague and carrying such tough restrictions that Greece could not easily get the money.

As a result, investors demanded high rates to loan to the government as it struggles to avoid default – rates the government says it can’t go on paying.

Greece has some €54bn in debt coming due this year and a huge budget deficit.

In an emergency video conference, the finance ministers of the 16-eurozone nations agreed on a complex three-year financing formula that generates an interest rate of “around 5%.”

This is less than commercial market rates – which have soared above 7% on Greek 10-year borrowing in recent weeks as the debt crisis dragged on – but more than beneficiaries of IMF usually pay.

European Central Bank president Jean-Claude Trichet and German Chancellor Angela Merkel have insisted that Greece not get below-market interest rates amounting to an EU subsidy for its past bad behaviour.

“This is certainly no subsidy” to Greece, Rehn told a news conference.

The test of today’s announcement will be whether it restores confidence that Greece will not default and gives it a chance to borrow normally at lower rates. Under last week’s rates, Greece would have had to pay more than twice what Germany pays.

Greek Finance Minister George Papaconstantinou said Greece had not asked for the plan to be activated, and still hoped to borrow on markets rather than seeking a rescue.

European Commission President Jose Manuel Barroso said the pledge of cash for Greece showed the 16 euro-zone nations will defend Europe’s single currency and help a partner in trouble.

Greece has been spending beyond its means for years, leaving it with a 2009 budget deficit of 12.9 % of economic output.

Athens plans to cut its deficit to 8.7 % this year and has launched a €4.8bn austerity programme cutting public sector wages, freezing pensions and hiking taxes.