Greece to ask for activation of rescue package

Greece to ask for activation of rescue package

Athens, Greece: Greece will ask for a joint eurozone-IMF financial rescue on Friday, a Greek official said, as market pressure pushed the debt-ridden country’s borrowing costs to unsustainable levels.

Greek Prime Minister George Papandreou was to make an announcement asking for the activation of the plan during a visit to the remote Aegean island of Kastelorizo on Friday, said the official, who spoke on condition of anonymity ahead of the official announcement.

The rescue package will provide Greece with loans from other eurozone countries to the tune of €30 billion at interest rates of about 5%, and about €10 billion from the International Monetary Fund (IMF).

Until now, Greece’s socialist government had insisted it preferred to tap bond markets for its borrowing requirements and avoid calling for a rescue.

But on Thursday, borrowing costs spiralled to alarming and unsustainable levels, pushing interest rates for Greek 10-year bonds to nearly 9%.

The spike came after Moody’s credit agency downgraded the country’s sovereign rating and the European Union’s statistics agency Eurostat revised Greece’s budget deficit in 2009 to 13.6% of gross domestic product from 12.9%, and said it could be further revised by up to 0.5 percentage points.

The level is more than four times the EU limit set for the 16 countries that use the euro, which has been badly hit by the Greek financial crisis. Athens insisted its target of reducing its deficit by at least 4 percentage points in 2010 remained unchanged.

The interest rate gap, or spread, between Greek 10-year bonds and German ones - considered a benchmark of stability - began to narrow on news that the government would trigger the mechanism, falling to 5.52 percentage points from Thursday’s alarmnig highs of 5.86 percentage points.