Greek rescue

Greek Prime Minister George Papandreou on Friday formally applied for the European Union and the IMF to activate the rescue package to stop the country from defaulting on its debt repayments. In a dramatic televised statement, Papandreou finally admitted defeat in his attempt to bridle the country's huge debt and deficits.

"The government and the Greek people have inherited a boat that was ready to sink, a country that had lost the respect of its partners and an economy that was left unprotected to the appetites of profiteers," said Papandreou.

The precise details of the rescue plan are still being negotiated, but it is expected that Greece will receive aid from the IMF first.

"Greece is expecting 12 billion euros ($16 billion) from the IMF at an interest rate of 2.64 percent. That is less than half the interest that Greece would pay on international markets. This would probably cover Greece's needs for the upcoming weeks," said Deutsche Welle correspondent Jannis Papadimitriou in Athens.

Athens needs to raise about 11 billion euros to service its debt by May 19. The government is believed to have only some two billion euros left its coffers.

Banks in serious trouble without rescue plan

Under a three-year plan agreed to in Brussels earlier this month, the IMF will provide about ten billion euros in 2010 while Eurozone nations have pledged 30 billion euros, making for a total rescue package of 45 billion euros.

Analysts in Athens believe that, without Friday's official request for help, Greek banks would face serious liquidity problems.

"Some of them would even have to remain closed this coming Monday," said Papadimitriou.

"To avoid this, Prime Minister George Papandreou triggered the rescue plan to buy time from the creditors. And this is very important, because right after the official request for assistance, the Greek stock exchange gained more than 3 percent due to the better performance of the Greek banks. "

Greeks suspicious of IMF bailout

IMF chief Dominique Strauss-Kahn warned that Greece was in for a hard time and that the money was no handout. "The effort to be made by the Greeks is huge," said the IMF chief.

"They have to understand that we are not punishing them for any kind of sin, we tried to help them to go back on track. And it will be very difficult, very long and very painful and it's in the interest of nobody to try and hide this reality."

Many Greeks are very suspicious of the motives of the IMF, Jannis Papadimitriou said.

"The International Monetary Fund is the traditional concept of the enemy here. One should not forget that, in Greece, special interest groups, trade unions and the communists are quite strong. Greeks are expecting painful austerity measures. But financial assistance from the IMF has advantages. It comes with moderate interest rates, and will come quite quickly, unlike money from European countries who need the approval from national parliaments," Papadimitriou explained.

According to recent polls, over 70 percent of Greek people are very pessimistic about the future, and more than 30 percent believe that the experts from Washington will stay up to 20 years. Many Greeks fear that unemployment, currently at 11.5 percent, might double in the next 12 months.

"I know that a lot of people here in Greece are drawing their money, or part of their money, from some of the banks," said Papadimitriou.

Greece's debt could hit 14 percent of GDP

Greece's image has been severely damaged. After coming to power last October, Prime Minister George Papandreou said Greece faced a credibility gap like never before. His government had announced a record deficit of 12.7 of GDP. It's now emerged that the correct figure is 13.4 percent.

That figure may well rise even more, said Papadimitriou. "This is not the end of the story. Analysts here in Athens believe that, by the end of the year, the deficit may rise to over 14 percent because there are still some hidden deficits. For example, in Greece, most public hospitals are managed by party officials and those people never issued a balance sheet or any other key financial statement," he said.

Germany demands very tight control

The money pledged by EU nations, however, could take some time to come. Germany, as Europe's largest economy, would be expected to provide 8.4 billion euros. German Chancellor Angela Merkel warned that Greece would have to present a viable savings plan before any money would be released.

"Any assistance will be tied to very strict conditions," said Merkel. "The stability of our currency is the first priority and the savings plans have to be absolutely credible."

Merkel said that Greece must first finish its talks with the IMF before any decisions can be made on how much aid Athens will receive. Decisions would involve the European Central Bank and the national parliaments of eurozone nations. Those comments immediately raised new doubts about how the rescue package can work.

The German government itself must also negotiate parliamentary hurdles and a likely legal challenge before Berlin can go ahead and supply its share of the aid package to Greece.

Author:Wilhelmina Lyffyt

Editor: Susan Houlton