World leaders scramble to negotiate $60 billion rescue plan for Greece
Saturday, April 24, 2010
LONDON -- European and International Monetary Fund negotiators were racing Friday to hash out a $60 billion rescue package for Greece after its prime minister, who called his country a "sinking ship," put out an urgent call for help to prevent a national default.
In making the appeal, Greek Prime Minister George Papandreou dropped his long-standing resistance to an international bailout. But the pending rescue was not enough to calm investors' fears of an economic collapse that could spread to other heavily indebted nations.
Although Greek bonds strengthened after the announcement, they fizzled by late Friday, showing that investors remain skeptical that Athens would adhere to the conditions of a bailout, which sources close to the talks said could include deeper cuts in public pensions and the privatizing of Greek railroads.
The doubts about Greece also spread on Friday to Portugal, Spain and other financially troubled European nations, putting their bonds under pressure and underscoring how concerns over national indebtedness have replaced the banking crisis as the primary problem in the global economy. A default in Greece could also ripple across the Atlantic, hitting banks and pension funds holding Greek bonds and heightening investor worries about the national debt of the United States.
Papandreou's desperate request tees up the biggest test of European solidarity in years, with Greece asking its neighbors to bail it out after a decade of overspending, rampant tax evasion and fudging of government books.
"The moment has come," Papandreou said in nationally televised remarks while visiting the Aegean island of Kastelorizo. "Today, the situation in the markets threatens to deconstruct not only the sacrifices of the Greek people but also the smooth course of the economy."
The rescue plan, which entails 15 European nations contributing $42 billion and the IMF about $18 billion, could give Greece breathing room while it tries to restore market confidence.
Sources familiar with the talks said the IMF could extend a three-year aid program to Greece, with a formal agreement expected within two weeks. Cash disbursals could be accelerated because of immediate need.
The European program would be larger in size, with an agreement anticipated in the coming days. The European funds, however, could take longer to deliver because the European parliaments would still have to approve the deal.
'Sense of urgency'
Although the United States is not offering direct funds, it is the most powerful player in the IMF. Treasury Secretary Timothy F. Geithner told reporters covering G-20 meetings in Washington that he was encouraged by the latest announcement from Europe.
"I very much welcome the greater sense of urgency we're seeing, and I want to encourage the Greek authorities, the Europeans and the IMF to move quickly to put in place a package of strong economic reforms . . . [and] financial support," Geithner said.
French Finance Minister Christine Lagarde told reporters in Washington that officials were "expecting acceleration" of the negotiations and that "significant" progress would be made in the "next few hours or days."