Athens: Greece has sealed a deal with the EU and IMF that opens the door to a multi-billion euro financial bailout but will require major sacrifices from the Greek people, Prime Minister George Papandreou said on Sunday.

The aid package, expected to total up to €120 billion ($160 billion) over three years, represents the first rescue of a member of the 16-nation euro zone and is aimed at stemming a debt crisis that has shaken markets worldwide.

“It is an unprecedented support package for an unprecedented effort by the Greek people," a sombre Papandreou told a televised cabinet meeting.

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“These sacrifices will give us breathing space and the time we need to make great changes," he added. “I want to tell Greeks very honestly that we have a big trial ahead of us."

Finance minister George Papaconstantinou gave details of the agreement before heading to a meeting later on Sunday with his euro zone counterparts in Brussels, where the aid is expected to win the bloc’s formal backing.

The deal’s size would be announced in Brussels but it would cover a large part of Greek borrowing needs for the next three years, said Papaconstantinou. Under the plan, Athens would make budget cuts of €30 billion over three years, he added.

In a statement, European Commission president Jose Manuel Barroso recommended that Europe activate the aid, calling the package of austerity measures “solid and credible".

“This assistance will be decisive to help Greece bring its economy back on track and preserve the stability of the Euro area," Barroso said.

Greece and its international backers hope the deal can prevent the crisis from spreading to other euro zone members with fragile finances such as Portugal and Spain.

But Papandreou faces a Herculean task in convincing Greeks to accept draconian austerity measures at a time when the economy is already in a deep recession.

On Saturday, thousands marched in May Day demonstrations in Athens shouting slogans against new budget cuts they say will hurt the poor and plunge the country into a downward economic spiral. An ALCO poll released on Friday showed more than half of Greeks plan to take to the streets in protest at the new cuts.

“High drama"

Famed US investor Warren Buffett said on Saturday he expected continued “high drama" from the Greek crisis, adding that it was impossible to predict how it would end.

Although Greece makes up only about 2.5% of the euro zone’s economic output, its woes have shaken confidence in the currency bloc and deepened global fears about sovereign debt built up during the financial crisis.

In Germany, which as the bloc’s largest economy will be expected to put up the lion’s share of the European aid, there is deep resentment about rescuing Greece, which manipulated its economic figures in order to enter the euro zone in 2001 and has lived beyond its means ever since.

Chancellor Angela Merkel insisted on making the International Monetary Fund (IMF) part of any rescue and made German aid contingent on bolder austerity steps from Athens, delaying the rescue and underscoring deep divisions in the bloc.

Economists say that if the rescue agreed on Sunday fails to calm markets, European countries could end up footing a bill of half a trillion euros ($650 billion) to save several nations on top of Greece.

Both Portugal and Spain saw their debt downgraded by ratings agencies this week and could become targets for the market unless they tackle their own deficits swiftly.

“The problem has grown bigger, this fire is threatening to spread and hurt Greece further and the other euro zone countries and economies," Papandreou told the Greek cabinet. “The cost of putting it out is expected to be huge, and the burden that Greeks will shoulder is even bigger."