Source: London Telegraph

George Papandreou formally activated a bail-out of an expected €45bn (£39bn), after worried investors pushed up the yield on Greek benchmark government bonds beyond 8pc, and fears grew that the country may be forced to default. The activation comes significantly earlier than expected, with teams from the IMF and EU having only begun their preparatory look through the country’s finances on Monday.

It marks the first time a euro member has had to be bailed out either by their fellow states or by the IMF, and will be seen as a further blow to the broader single currency. Although the news helped support the currency on Friday, pushing it up half a penny against the pound to 87.02p, some members of the G20, which met in Washington on Friday, fear that the euro project may struggle to survive the crisis.

But Axel Weber, of the European Central Bank, insisted in a news conference in Washington: “There is no problem for the euro.”

The Greek budget deficit swelled last year to 13.6pc, according to newly-updated figures from Eurostat, which have been revised up sharply following apparent efforts by the previous government to disguise the scale of borrowing. The scale of the deficit, alongside concerns that the government will struggle to raise taxes and bring the public finances back to balance, sparked an exodus of cash from the country.

Under the terms of a deal hammered out by euro members and IMF officials earlier this month, Europe will lend the country around €30bn, with a further €15bn provided by the IMF.

Dominique Strauss-Kahn, managing director of the Fund said: “We have been working closely with the Greek authorities for some weeks on technical assistance, and have had a mission on the ground in Athens for a few days working with the authorities and the European Union. We are prepared to move expeditiously on this request.”

However, there are concerns that despite the unprecedented scale of the loan, it will not be sufficient to do little more than buy the country time, allowing it to finance its state only for another few months. The full details of the loan will not be laid out in the next few weeks, as IMF and euro area officials hammer out an economic plan for the country, which is likely to involve further severe cuts in public spending. The German Chancellor Angela Merkel, who has had to contend with a constitutional challenge to a prospective bail-out, said the aid would be accompanied by “very strict conditions”.

George Papaconstantinou, the Greek Finance Minister, who on Friday had private talks with Mr Strauss-Kahn, said that the first chunk of the money should arrive with the Greek government by May 19.

Advertisements