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16th Aug 2018

Greece formally requests EU-IMF aid

  • Euro area states have pledged to give up to €30 billion this year (Photo: mammal)

Greece has formally placed a request to activate a €40-45 billion EU-IMF aid package, a day after new budget deficit figures revealed the country's 2009 shortfall to be worse than previously forecast.

The country's finance minister, George Papaconstantinou, transferred the message on Friday (23 April) in a letter addressed to Eurogroup President Jean-Claude Juncker, EU economy commissioner Olli Rehn and European Central Bank President Jean-Claude Trichet.

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"In accordance with the Statement of the Heads of State and Government of 25 March 2010 to provide financial support to Greece, when needed, and the follow up Statement of the Eurogroup, Greece is hereby requesting the activation of the support mechanism," reads the letter.

Earlier, Greek Prime Minister George Papandreou said he would instruct his finance minister to place the request. "It is a national and imperative need to officially ask our partners in the EU for the activation of the support mechanism we jointly created," he said in statements broadcast live from the remote Aegean island of Kastellorizo.

"Our partners will decisively contribute to provide Greece the safe harbour that will allow us to rebuild our ship," said the embattled premier against a picturesque backdrop.

Fresh figures released by the EU's statistics office, Eurostat, on Thursday revealed Greece's 2009 deficit to be 13.6 percent of GDP, significantly higher than the previous 12.7 percent forecast.

Markets subsequently leapt on the new EU data, sending the yield on 10-year Greek bonds to 8.83 percent, the highest since 1998, and prompting credit rating agency Moody's to cut the country's sovereign rating from A2 to A3. On Friday, bond yields retreated marginally following the formal aid request.

Next steps?

A significant amount of uncertainty remains however. Greece, swamped by a €300-billion debt pile, is currently negotiating the lending terms with EU and IMF officials in Athens, with the talks potentially lasting for several more weeks.

An agreement between EU leaders in late March indicated that any request for aid must first be approved by the ECB and the European Commission, before then being formally agreed by euro area states.

While governments may be willing to bail-out their profligate partner, doubts remain as to how quickly member states will be able to release the funds, with at least one legal challenge being mounted in Germany against the unpopular transfer to Greece.

Responding to questions from MEPs in Strasbourg on Tuesday, Commission President Jose Manuel Barroso said several times that he is confident the Greek plan does not breach the EU treaties. The solution found so far is "fully in line with the treaty," he said. "It is simply wrong to say that it is some kind of bailout."

Chancellor Angela Merkel, faced with crucial regional elections in May, has been at pains to stress that any support must be considered 'ultima ratio', or a last resort.

As well as the legal uncertainty, total contributions to the three-year support package have yet to be finalised. Euro area states have agreed to contribute €30 billion, this year, but figures for 2010 and 2011 remain unclear.

German central bank chief Axel Weber recently conceded that "the numbers are changing all the time", according to reports in the Wall Street Journal, adding that total euro area contributions over the three years could reach as much a €80 billion.

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