The months-long Greek debt-drama reached a denouement on Friday, with the Prime Minister George Papandreou, formally requesting the activation of a joint eurozone-IMF rescue package.
“The activation of the (EU-IMF aid) mechanism is a national need,” he said in a televised statement, adding that the bail out would send a signal to markets that the European Union “is protecting the euro.”
The EU responded immediately, assuring it would give “rapid” treatment to the request, while the IMF head Dominique Strauss-Kahn said the fund would “move expeditiously.”
However, several logistical issues remain unclear, including questions like the process eurozone members must now follow to release the funds agreed on in the rescue package and whether the 45 billion euro prove enough to meet the country’s needs.
Friday’s request from Greece, followed the announcement on Thursday of new data from Eurostat, the EU’s statistical agency, that pegged the Greek budget deficit of 2009 at 13.6 percent, up from the pervious figure of 12.7 percent. The upshot is that the austerity measures currently being negotiated by Athens with the IMF and euro-zone countries might have to bite even deeper than already envisaged.
All eyes will now be on the impact of the latest development on markets, the euro and the cost of borrowing for Greece. The gap between Greek and German long-term bond yields narrowed slightly, and the cost of insuring against a Greek default fell by about half a percentage point. But the implied risk premium on Greek sovereign debt was still much higher than it was a few weeks ago.
The euro recovered from a one-year low against the dollar following the announcement, to stand at $1.33 to the dollar. It remains uncertain however that these gains for the euro will last.
The European Commission, the European Central Bank and the IMF have been holding talks in Athens to finalize the terms of the aid package since Wednesday. The talks are expected to be completed next week.
According to analysts, Greece needs to raises around €10 billion in May to cover redemptions, coupon payments and its primary government deficit.
