European governments Sunday endorsed an unprecedented 110-billion-euro bailout to save Greece from bankruptcy and shore up the single currency after Athens agreed to draconian spending cuts.
The first installment of the eurozone-IMF rescue package will be paid within the next few weeks, with the rest spread over three years and conditional on a swathe of painful cuts and tax rises in Greece, they said.
Greek Prime Minister George Papandreou warned his country it would have to make “big sacrifices” as he announced massive new cuts to secure the rescue package, which is bigger than that of bankrupt Argentina in the 1990s.
But Greek unions vowed to battle the drastic round of austerity measures, worth some 30 billion euros and including deep cuts to wages and pensions.
The bailout, worth 146 billion dollars, includes 30 billion euros of loans from the International Monetary Fund whose executive board is set to approve it “within the week,” managing director Dominique Strauss-Kahn said.
Parliaments in euro area countries will next week begin the processes that will enable them to transfer their contributions to Greece before its next nine billion euros of debt repayments fall due on May 19.
A summit of eurozone countries will be held in Brussels on Friday to deal with the longer-term consequences of the Greek debt crisis — including how to spot and halt similar problems elsewhere.
“We have decided to activate the support plan for Greece,” Luxembourg Prime Minister Jean-Claude Juncker, head of the eurozone’s group of finance ministers, told reporters after talks with the bloc’s 16 members in Brussels.
The bailout includes a 10-billion-euro fund set aside for Greece’s finance industry, as its banks face major economic contraction.
Rocked by violent street protests at home, Greece has been under heavy pressure to cut a massive public deficit that has shaken the euro, rattled markets and sparked fears of contagion to other debt-ridden European countries.
Germany, which is expected to provide the biggest portion of the Greek bailout, warned Athens it must live up to its promises.
“I think that this is a very ambitious programme,” said Chancellor Angela Merkel, who has found herself at the sharp end of foreign criticism for dragging her feet on coming to Greece’s aid.
She said the bailout was “the only way to ensure the stability of the euro.”
In Brussels, French Finance Minister Christine Lagarde said it was in the “clear interest” of Europe to keep Greece stable.
Finnish Finance Minister Jyrki Katainen said there was no alternative, comparing Greece to Wall Street giant Lehman Brothers, whose fall in 2008 precipitated the financial crisis that plunged the world into its deepest post-war recession.
Like Lehmann, Katainen said, “if (Greece) fell, it would shake Europe’s economy tremendously.”
Juncker also said the eurozone finance ministers will look for “voluntary contributions” from banks in their countries to help Greece.
All of Greece’s 15 euro partners are expected to make a profit on their individual loans to Athens, said EU monetary affairs commissioner Olli Rehn.
But reaction in Greece was severe, with Yannis Panagopoulos, president of the million-member strong GSEE union, warning that the cry for help would only “worsen the recession and plunge the economy into a deep coma.”
He added: “It’s time to step up the social battle, our May 5 general strike will be the beginning of a long battle.”
After months of hesitation, eurozone countries accelerated rescue efforts out of fear the Greek debt crisis could pull down other members with severely strained public finances such as Portugal, or even Spain.
In exchange for emergency loans, Greece agreed the new cuts over three years with the aim of slashing the public deficit to less than three percent of output by 2014, from 13.6 percent last year.
Finance Minister George Papaconstantinou said the government would scrap 13th and 14th month bonus wages for public sector workers as well as for pensioners.
The retirement age for women will be raised next year from 60 to 65, bringing it in line with that for men.
The sales tax is also to be raised from 21 percent currently to 23 percent this year.
However, the European Central Bank warned Greece that it should “stand ready” to make more cuts “that may become appropriate to achieve the objectives of the program.”