The Greek government pushed the button on an emergency financial bailout package Friday, formally acknowledging that it needs loans from its European neighbors and the International Monetary Fund to avoid bankruptcy.
In a nationally televised address, Greek Prime Minister George Papandreou said that activating the low-interest loans worth up to $56 billion had become a “national necessity” if the government is to keep paying its bills.
The move came after weeks of insistence by the government that it would not have to resort to such loans, which it characterized as more of an insurance policy to soothe skittish investors. But global markets were not satisfied, pushing up Greece’s cost of borrowing to unsustainable levels this week and forcing the country to act.
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“We thought that this support mechanism would calm markets enough for us to raise the money we needed to meet borrowing requirements,” Papandreou said in his address. “The markets, though, did not respond.”
Money from other European Union member nations and the IMF could start pouring in within days.
The IMF pledged to conduct an expedited review of the request, and IMF Managing Director Dominique Strauss-Kahn scheduled discussions for the weekend with Greek Finance Minister George Papaconstantinou.
In the currency markets, the news gave an immediate boost to the euro, which had fallen dramatically in value since Greece’s debt crisis began emerging in October.
But the country’s yawning budget deficit, as well as similar woes in Ireland, Spain and Portugal, continues to put the European-wide currency under severe strain and affect stock markets worldwide. The debt crisis is the euro’s biggest test since it was launched in 1999.
Major European stock markets rallied after the news, although main Greek indexes fell slightly.
The rescue package hammered out a few weeks ago offers roughly $41 billion in loans from Eurozone countries at an interest rate of about 5 percent, better than what Greece would find on the open market but not as preferential as the Greeks might want.
The deal also brings in the IMF, which would supply about $15 billion, and possibly slightly more if warranted.
The IMF is likely to demand further austerity measures from Greece to bring down its runaway budget deficit. The Greek government has unveiled measures to cut spending and increase revenue, policies that have sent thousands of workers into the streets in protest.
Greece’s hopes that it would not have to activate the loan package were dashed when European Commission officials announced this week that the country’s budget deficit was actually 13.6 percent of gross domestic product and not 12.9 percent, as previously stated. That is more than four times the rate allowed under Eurozone rules.
Despite the Greek crisis, global financial leaders meeting in Washington declared Friday that the world’s economy is recovering faster than expected from the worst recession in decades. Finance ministers and central bank governors of the world’s 20 major economies credited the massive amounts of government stimulus that have been provided.
The Associated Press contributed to this report.