Greece taps into EU rescue cash

2010-05-20 12:40

Athens -Greece on Wednesday averted default by tapping into a multi-billion-euro EU loan rescue as unions geared up for a new general strike and official figures showed a strong rise in government debt.

A transfusion of €14.5bn a day earlier from its eurozone peers arrived just in time for Athens to meet its first debt deadline after an unprecedented bailout deal agreed with the EU and the IMF.

Greece's obligation to redeem a 10-year government bond maturing on Wednesday had triggered fears of a debt default that shook international markets.

The Greek finance ministry said the money transfer from 10 eurozone countries, added to €5.5bn from the International Monetary Fund delivered to Athens on May 12, "cover the immediate and short-term financing needs of the Hellenic Republic."

The money is part of an unprecedented €110bn bailout fund by the EU and the IMF pieced together after fears surrounding Greece's solvency pushed borrowing costs beyond its reach.

Before being shut out of the markets with successive credit rating downgrades, the recession-hit country resorted to short-term borrowing to meet its budget needs and repay older obligations.

On Wednesday, the state general accounting office said the central government debt had increased to €310.4bn by the end of March from €298.5bn at the end of 2009.

Greece's overall government debt, which is traditionally reported as lower than the central debt due to the inclusion of profit-making state companies, is expected to reach €295bn by the end of 2010, according to the finance ministry.

With growing moves in Europe to tighten financial sector regulation, Socialist Prime Minister George Papandreou, who has regularly accused speculators of driving his debt-hit country to its knees, called for tougher rules against "the financial, credit, bank sectors and speculation."

"If policy does not hold sway and we simply let markets and ultimately forces behind markets take the decisions, we will go towards a world of great flux and possible crises, even conflict," Papandreou told reporters at an EU-Latin America summit in Spain.

Greece's next major hurdle is in March, 2011 when it must redeem a three-year bond worth €8.6bn.

"The programme has been designed to meet the Greek state's borrowing requirements," Finance Minister George Papaconstantinou said on Tuesday.

Greece is to receive another €18bn from the EU and the IMF by the end of the year but the transfers are conditional on the results of the government's austerity programme of tax hikes and wage and pension cuts.

A mission from the European Commission, the European Central Bank and the IMF will visit Athens in June and the country will deliver a progress report in July, the minister said.

"The first regular progress evaluation will begin in July so that the second instalment of the support mechanism can be released in September," Papaconstantinou said.

The IMF involvement and the draconian austerity measures have outraged Greek unions, which have staged three general strikes in recent months and waves of street protests.

A fourth general strike on Thursday will shut down ministries, public services, schools and banks, reduce hospitals to emergency staff, close down trains and confine all ships to port.

Public transport in Athens will be severely disrupted but international flights will be unaffected as air traffic controllers decided not to join the strike.

A number of flights to Greek islands will be curtailed as local airport staff are participating in the action, Greek carrier Olympic Air said.

Meanwhile a report said the government wanted to cut by 50% its budget for the 2013 Mediterranean Games, which are set to be hosted in the northern Greek cities of Volos and Larissa.

The website reported that the Culture and Tourism Ministry had sent a file to the committee that organises the games, which was due to decide on Sunday at a meeting in Valetta, Malta. There was no immediate confirmation.

 - AFP