Rescue money

Athens has asked for a joint eurozone-International Monetary Fund emergency rescue deal to be activated.

The three-year standby package which was worked out by EU leaders together with the IMF in March, could be worth between 40 and 45 billion euros ($60 billion) in the first year.

"It is imperative that we ask for the activation of the mechanism," Greek Prime Minister George Papandreou said while visiting the remote Aegean island of Kastellorizo.

The IMF said it was ready to respond quickly. "We are prepared to move expeditiously on this request," IMF managing director Dominique Strauss-Kahn said in a statement released on Friday.

"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," he said.

German Chancellor Angela Merkel said that no amount could be arrived at for Germany’s contribution to the aid package, or decisions taken, until discussions between Greece and the IMF had taken place.

Strict conditions to be agreed

She stressed that any assistance would depend on "very strict conditions" and would require a "credible savings plan" to be drawn up in talks that would also include the European Central Bank and the European Commission. Merkel promised to keep parliament and members of her coalition government informed of any steps that were to be taken.

Market pressure has pushed Greece's borrowing costs to unsustainably high levels. Analysts say Greece has no option but to ask for a rescue if it is to avoid defaulting on part of its debt due in May.

The rescue deal could provide Greece with loans from other eurozone countries totaling 30 billion euros ($40 billion) at interest rates of 5 percent. 10 billion euros of extra aid could come from the IMF. Athens has not yet said how much money it intends to claim and details of the deal are still being negotiated.

Greek troubles deepen

On Thursday, the EU statistics office said Greek public finances are far worse than estimated, and that Greek data remains suspect. Together with a ratings downgrade for Greece, the euro has taken a hit, currently at its lowest level against the dollar for 12 months.

The prime minsiter said the markets have not responded positively to Greece's austerity measures, and that it is now a "national and pressing necessity" to call for the aid.

The emergency package was hammered out by the 16 countries of the eurozone, in an unprecedented deal on March 25.

German adjusts to bailout idea

As Papandreou announced Greece would be taking the rescue money, German finance ministry spokesman Michael Offer said Germany was "committed to solidarity."

Offer said any aid given would be "in order to stabilise the euro" and therefore "in our own national interest."

However, the idea of an EU bailout had not been a very popular one in Germany. Chancellor Angela Merkel knew a rescue package using German money would not be popular with voters, and was the strongest European voice against a eurozone fund.

Aid as final resort

She battled to include IMF financial support and throughout the period where the deal was shaped, Merkel was adamant that any package would be a "last resort."

"The fact that a fire extinguisher has been mounted on the wall does not mean that it will be used," Chancellor Angela Merkel's spokesman, Christoph Steegmans, said during a news conference in April.

The IMF has only ever been involved in Western Europe on two former occasions: in Britain in 1976 and in Iceland at the end of 2008.

Most of the Fund's other interventions in Europe have involved central or eastern states, many of them former members of the Soviet bloc.

cb/rc/AFP/AP/Reuters
Editor: Mark Hallam