German Cabinet approves Greece bail-out

German Chancellor Angela Merkel’s Cabinet has approved legislation to provide Greece with billions in aid as part of an EU bailout plan, an official said today.

Germany’s contribution was expected to be €8.4bn for the first year of the bail-out.

It now needs to pass both houses of Germany’s parliament but the legislation is being fast-tracked to be completed by Friday.

The move came after the 15 other eurozone countries and the International Monetary Fund yesterday agreed to provide €110bn in loans to Greece over three years.

The German official, speaking on condition of anonymity before the formal announcement was due to be made, told The Associated Press the Cabinet had approved the plan but gave no further details.

Chancellor Merkel said her country will provide €22.4bn to Greece over a three-year period.

Speaking to reporters in the German capital, Merkel said the money would do more than just assist Greece. She said it will help the “stabilisation of the euro as a whole and, therefore, help the people of Germany”.

The move was approved after Athens adopted a new round of austerity measures which have provoked uproar among Greek workers. All the major German opposition parties have pledged not to block it.

“This is the only way for us to return the euro to stability,” Chancellor Merkel said. “It is a sustainable programme, spread out over many years.”

IMF officials said Greece could start receiving money from the rescue package in about a week. The European Central Bank, meanwhile, suspended its rating limits on Greek debt.

Germany, Europe’s largest economy and European Union founding member, had insisted on the strict austerity package.

Chancellor Merkel was worried about the impact of the bail-out on her party in elections. Many Germans are angry that tax revenues are being used to bail out a fellow EU member they feel has been dishonest in its accounting and profligate in its spending – while Germany itself has undergone years of budget-tightening to stimulate its economy.

“This is just the tip of the iceberg and I am afraid of it,” said Werner Selmer, at Berlin’s main train station. “Is this necessary? Should we do this? I think yes, my feeling is yes, but I have a bad feeling, a very bad feeling.”

Protests were triggered in Greece by the announcement yesterday of more austerity measures worth €30bn until 2012, including public service and pension pay cuts, higher taxes and a more streamlined government.

About 1,000 binmen and other striking municipal workers today marched to the Greek parliament, chanting “trash for parliament, not the landfill!”

But Prime Minister George Papandreou insisted the new measures were vital for Greece’s financial survival.

“This is a chance for a fresh start,” Mr Papandreou said. “We are making changes that should have happened years ago.”

The ECB – central bank for the 16 nations which use the single currency – said it was suspending the minimum credit rating requirement for Greece, including all existing and new debt instruments “issued or guaranteed by the Greek government”.

The decision by the Frankfurt-based bank ensures that Greek debt can be used as collateral in ECB lending operations, despite its credit ratings. Greece’s financial disarray was amplified last week when Standard & Poor’s cut Greece’s rating to junk status.

“Clearly, desperate times call for desperate actions, and today’s ECB decision is one step in the right direction,” analysts with the Royal Bank of Scotland wrote in a research note.

Greece’s new austerity measures are expected to exacerbate its recession, but the massive rescue plan will include 10 billion euro (£8.6 billion) for a “stabilisation fund” to support Greek banks, Deputy Finance Minister Philippos Sachinidis told state television.

The country’s trade unions are planning a general strike on Wednesday.

“These cuts will kill our income. Pensions in Greece are already very low,” Dimos Koumbouris, head of a pensioners’ association, said.

He warned the austerity measures, which will cut holiday bonuses paid to public sector employees and pensioners, will force them to curtail spending.

“Many retired people wait for their holiday bonuses to buy clothes, and even extra food,” he said. “How will these people get by now?”