MercoPress. South Atlantic News Agency

Euro Zone and IMF Agree to 110 Billion Euro Aid for Greece; Summit in Brussels

In exchange Greece must implement draconian budget cuts which have triggered violent reactions from unions

Euro zone members and the IMF have agreed to a 110 billion Euro (146.2 billion US dollars) three-year bailout package to rescue Greece's embattled economy. In return for the loans, Greece will make major austerity cuts which Prime Minister George Papandreou said involved “great sacrifices”.

The European Union will provide Greece with 80 billion Euros in funding and the rest will come from the International Monetary Fund (IMF). The deal is designed to prevent Greece economy from defaulting on its massive debt. However, it must first be approved by some parliaments in the 15 other Eurozone countries.

Luxembourg's Prime Minister, Jean-Claude Juncker, said up to 30 billion Euros would be disbursed to Greece in the first year. The first loan tranche will be released before 19 May—the date of Greece's next debt repayment, he said. The leaders of the 16-nation Euro Group will hold a summit in Brussels on Friday to “draw initial conclusions from the Greek crisis”, he added.

The IMF is expected to approve its portion of the loan this week, IMF Managing Director Dominique Strauss-Kahn said. In return for the financial support, the Greek Government has unveiled a fresh round of sweeping efficiencies, including further tax rises and deeper cuts in pensions and public service pay.

The Euro Group is trying to speed up rescue efforts for Greece amid fears its debt crisis could undermine other debt-laden states that use the single currency. Anxiety about contagion has focused on Portugal, Spain and the Republic of Ireland.

Germany has been the most reluctant to bail out Greece, but its Economy Minister, Rainer Bruederle, said there was a “good chance” of getting German parliamentary agreement by Friday. Yet, he said, Greece had to implement its new austerity program “quickly” and “to the letter”.

The Greek economy is still deep in recession and on Sunday the government forecast that GDP would fall by 4% in 2010. The country's national debt—currently at about 115% of GDP—would rise to 149% by 2013 before falling, it added.

Mr. Papandreou told a televised cabinet meeting that active and retired public sector workers would bear the brunt of the new wave of budget cuts. “With our decision today our citizens will have to make great sacrifices,” he said, describing public anger at the new wave of cutbacks as “evident”. “Our national red line is to avoid bankruptcy,” Mr. Papandreou said, adding that “no-one could have imagined” the size of the debt that the previous government—which left office last year—had left behind.

The austerity plan aims to achieve fresh budget cuts of 30 billion Euros over three years with the goal of cutting Greece's public deficit to less than 3% of GDP by 2014. It currently stands at 13.6%. Measures include:

• Scrapping bonus payments for public sector workers;
• Capping annual holiday bonuses and axing them for higher earners;
• Banning increases in public sector salaries and pensions for at least three years;
• Increasing VAT from 21% to 23%;
• Raising taxes on fuel, alcohol and tobacco taxes by 10%;
• Taxing illegal construction.

Finance Minister Giorgos Papakonstantinou said Greece had been called on to make a “basic choice between collapse and salvation”. “It is not going to be easy on Greek citizens, despite the efforts that have been made and will continue to be made to protect the weakest in society.”

New emergency legislation authorising the cuts and tax rises is now being drafted and is due to be put before parliament for approval by the end of the week. However, unions have vowed to fight the round of austerity measures. The third nationwide general strike in as many months is scheduled for Wednesday.

German Chancellor Angela Merkel said Greece's austerity plans were “very ambitious” and would spur other troubled Eurozone members to do all they could to avoid the same fate. “These countries can see that the path taken by Greece with the IMF is not an easy one. As a result they will do all they can to avoid this themselves,” Mrs. Merkel told the Bild am Sonntag newspaper.