Eurozone members act to protect their currency as debt-ridden Athens announces new austerity measures
By Henry Chu, Los Angeles Times
Reporting from London
European countries and the International Monetary Fund on Sunday threw Greece a lifeline worth a stunning $146 billion after the financially foundering nation unveiled a stinging program of spending cuts and tax hikes to reduce its enormous government deficit.
At an emergency meeting in Brussels, finance ministers from the 16 nations that use the euro currency signed off on the bailout package, which would grant low-interest loans to Athens to help it avoid a humiliating bankruptcy. The money would be available over the next three years and would come from the International Monetary Fund and fellow Eurozone countries such as Germany and France.
"This assistance will be decisive to help Greece bring its economy back on track and preserve the stability of the euro area," said Jose Manuel Barroso, president of the European Commission, who described the bailout as an act "of solidarity and responsibility".
In exchange for the aid, the Greek government was forced to commit to new austerity measures on top of ones announced in March. The painful retrenchment will almost certainly encounter vociferous opposition from unions and social activists in a country already racked by economic protests in recent weeks, but officials said their hands were tied.
"The choice was one between seeing the nation crumble or moving to save it," Finance Minister George Papaconstantinou said. "We chose the latter".
The loan package came in response to the severest test to hit the euro since it debuted 11 years ago, an escalating debt crisis that has weakened the currency and rattled stock exchanges around the world. The massive rescue plan is an expanded version of one proposed last month, and is still subject to approval by parliaments in some Eurozone countries.
But backers took heart from a statement by German Chancellor Angela Merkel that she would try to push legislation on the bailout through the Bundestag, the lower house of Parliament, by Friday. Berlin has been the biggest holdout against a rescue deal, and critics say that has made the crisis worse.
Dominique Strauss-Kahn, the IMF's managing director, said the assistance package would go before the fund's executive board for approval "within the week".
Officials hope the loans will keep the debt crisis from spreading beyond Greece to other Eurozone countries whose finances are in shaky condition, particularly Portugal, Spain and Ireland, which are also struggling to contain big budget deficits.
In Greece, workers have been mounting furious protests against the prospect of drastic government cuts. Officials are bracing for a general strike Wednesday over the new austerity plan, which includes higher fuel, tobacco, alcohol and sales taxes, cuts in military spending and the elimination of two months' annual bonus pay for civil servants.
Axing the bonus is a particularly fraught move in a country where as many as 1 in 4 workers is employed by the state. But with a whopping government deficit amounting to 13.6% of gross domestic product, Greece must dig deep.
"These are painful sacrifices we have to make," Prime Minister George Papandreou said at a televised Cabinet meeting Sunday. "The public sector is Greece's ailing patient, and we need to act fast in order to recover faster".
Pressure on Athens to enact deep cuts was especially heavy from Germany, where government leaders and popular opinion have taken a hard line against rescuing a country perceived as financially reckless and unreliable.
With an important state election looming next week that her party is desperate to win, Merkel has alternated between promising vaguely to help Greece in order to stabilize the euro and demanding that Athens be made to feel the consequences of its free-spending ways. Last week, she surprised even some Germans by declaring that Greece should never have been allowed to adopt the euro in the first place.
But critics say that by refusing to commit to a rescue package quickly and letting national interests trump regional ones, Merkel worsened the debt crisis, upped the price tag on the bailout and made a mockery of the European Union.
By the time an initial Eurozone-IMF loan package of more than $50 billion was unveiled last month, which Greece formally accepted April 23, investor skepticism was already running rampant.
Markets continued to push up Athens' cost of borrowing to punishing levels. Credit-rating agencies stoked fears of a domino effect last week by downgrading Spain and Portugal. And the IMF and EU were forced to scramble to put together a bigger bailout package to reassure nervous investors.
"The indecision and dithering of the European Union, led by the chancellor, have exacerbated the crisis and driven the consolidation requirements into the stratosphere," Juergen Trittin, leader of Germany's Green Party, said last week.
On Wednesday, when Standard & Poor's demoted Spain's credit rating, Merkel conceded that negotiations on a bailout for Greece "must be accelerated". German lawmakers who had expressed reservations also pledged to help secure quick approval for a loan package in Parliament.
As the Eurozone's economic powerhouse, Germany will contribute the most to the zone's offer of about $107 billion in loans. The rest of the $146-billion package is to come from the IMF.
If the bailout is approved expeditiously by Eurozone governments and the IMF, Greece could receive its first payout this month. The loans will be contingent on Athens following through on its deficit reduction commitments, which will be monitored quarterly.
Analysts say that preventing bankruptcy in Greece and averting similar crises in Spain and Portugal are in Berlin's own interests. Nearly half of those three countries' combined debt lies in the hands of German and French banks, which could ill afford it if the countries defaulted.
"This is the only way for us to return the euro to stability," Merkel said Sunday of the Greek bailout.
Papandreou took a swipe at Merkel and other European partners when announcing his government's austerity package.
"From the start, I forewarned them that this was a serious problem, much greater than what they perceived it to be," he said. "Some listened. Some did not. And reluctance prevailed and … fed markets a message of indecisiveness".
Papandreou has problems of his own with popular opinion at home. Athens' austerity measures have the potential to unleash major social unrest, and some question whether the government will remain steadfast in imposing them.
Although polls this year indicated that Greeks were willing to tighten their belts, new surveys suggest that the feeling is fading. In one poll, 61% of respondents opposed the decision to ask for an aid package that would allow the EU and the IMF to dictate more budget cuts.
Unions have vowed to oppose the abolition of bonuses and an overhaul of the pension system. The new austerity package also scraps collective-bargaining wage agreements.
Left untouched were bonuses in the private sector, despite fears among many Greeks and some economists that those too would be curbed.
Special correspondents Anthee Carassava in Athens and Kate Connolly in Berlin contributed to this report
Los Angeles Times
