BRUSSELS, Belgium – European governments and the International Monetary Fund on Sunday committed to pull Greece back from the brink of default, agreeing on euro110 billion in emergency loans on the condition Athens make painful budget cuts and tax increases.
The rescue is aimed at keeping Greece from defaulting on its debts and preventing its financial crisis from infecting other indebted countries just as Europe is struggling out of recession.
After chiding Athens for years of mismanagement and cheating on their budget reporting, the IMF and Greece’s 15 partners that share the euro currency rewarded Prime Minister George Papandreou for tough measures including cuts in civil servant’s pay.
“I have done and will do everything so the country does not go bankrupt,” Papandreou told a nation which now faces years of painful belt-tightening after years of overspending.
France, Greece’s most sympathetic partner, agreed there was no other choice.
“It’s a very harsh plan because there was a lot of laxity,” Finance Minister Christine Lagarde said.
But even Germany, long the fiercest critic of Greece’s boundless spending, saw the need to back a euro-partner in such dire need – if only to keep the shared currency out of more trouble. The crisis is already threatening other eurozone countries with huge financial problems, including Portugal and Spain.
“It is not an easy decision but there is no alternative,” German Finance Minister Wolfgang Schaeuble said after the eurozone finance ministers approved the package in an emergency meeting in Brussels.
Lagarde also insisted that “everyone has an interest in Greece being stable and trusted.”
The new Greek measures include cuts in civil servants’ salaries and pensions, and tax increases, including for tobacco and alcohol, that aim to cut the deficit to below 3 percent of gross domestic product by 2014 from 13.6 percent now.
“We are called on today to make a basic choice. The choice is between collapse or salvation,” George Papaconstantinou said before flying to Brussels.
Violent protests already marked the Labor Day parades in Athens on Saturday and more demonstrations and a nationwide general strike is set for Wednesday.
“These are the harshest, most unfair measures ever enacted. That is why our reaction will be decisive and dynamic. You can’t always make the workers pay for the results of failed policies,” Stathis Anestis, spokesman for Greece’s largest umbrella union, GSEE, told the Associated Press.
Yet with Papandreou’s Socialists holding a large parliamentary majority, his austerity plan is unlikely to face obstacles before it is rushed through parliament by Friday.
“Economic reality has forced us to take very harsh decisions,” Papandreou said, adding that “This is the only way we will finance our euro300 billion debt.”
The IMF’s lead negotiator in Athens, Poul Thomsen, praised Greece’s “draconian reforms” that he said could help “shock and awe markets and re-establish confidence.”