LONDON – The Greek government pushed the button on an emergency financial bailout package Friday, formally acknowledging that it needs loans from its European neighbors and the International Monetary Fund to avoid a humiliating bankruptcy.
In a nationally televised address, Greek Prime Minister George Papandreou told his countrymen that activating the low-interest loans worth up to $56 billion had become a “national necessity” if the government is to keep on paying its bills.
The move came after weeks of insistence by Athens that it would not have to resort to such loans, which it characterized as more of an insurance policy to soothe skittish investors. But global markets were not satisfied, pushing up Greece’s cost of borrowing to unsustainable levels this week and forcing Athens to bow to the inevitable.
Money from other European Union member states and the IMF could start pouring in within days.
In the currency markets, the news gave an immediate boost to the euro, which had fallen dramatically in value since Greece’s debt crisis began emerging last October.
But Athens’ yawning budget deficit, as well as similar woes in Ireland, Spain and Portugal, continues to put the European-wide currency under severe strain.
The crisis also has strained diplomatic relations within the eurozone, the club of 16 nations that use the currency. Germany, the continent’s economic powerhouse, has strongly resisted the idea of extending aid to Greece, whose economic woes Berlin blames on Athens’ own profligate spending and disingenuous accounting.
At German insistence, the rescue package hammered out a few weeks ago offers about $41 billion in loans from eurozone countries at an interest rate of about 5 percent, better than what Greece would find on the open market but not as preferential as Athens might want.
The deal also brings in the IMF, which would supply about $15 billion – and possibly slightly more if warranted.