ATHENS – European finance ministers agreed a record 110 billion euro ($147 billion) bailout for debt-stricken Greece on Sunday after Athens committed itself to years of painful austerity.
After weeks of tough talk and procrastination due to fierce public opposition to handouts for the Greeks, German Chancellor Angela Merkel finally threw her full support behind the EU/IMF package, vowing to fight for parliamentary approval by Friday.
Euro zone ministers, meeting in emergency session, approved the three-year package of emergency loans and agreed the first funds would be released in time for Athens to make a big debt repayment to creditors on May 19.
In exchange for by far the largest bailout ever assembled for a country, Prime Minister George Papandreou announced further spending cuts and tax increases totaling 30 billion euros over three years on top of tough measures already taken.
"It is an unprecedented support package for an unprecedented effort by the Greek people," a somber Papandreou, wearing a dark purple tie, the color used for funerals in Greece, told a televised cabinet meeting.
Merkel called the programme very ambitious and said she would work to achieve swift parliamentary approval of Berlin's share -- the biggest of any EU state at about 22 billion euros out of 80 billion -- of the rescue loans.
"I'm going to work for the Greece programme and its passage," she told reporters in Bonn.
Euro zone leaders will hold a special summit on Friday to formally launch the rescue after obtaining parliamentary approval where necessary.
Greeks have already taken to the streets to demonstrate against the austerity drive and past governments have backed off from reforms to defuse often violent protests. But Papandreou, a Socialist with a strong personal approval rating, has insisted the country must face the bill for years of drift and graft.
"These sacrifices will give us breathing space and the time we need to make great changes," he said. "I want to tell Greeks very honestly that we have a big trial ahead of us."
The first rescue of a member of the 16-nation euro zone aims to stem a debt crisis that has shaken financial markets and begun to spread to fellow euro zone weaklings Portugal and Spain. Berlin's hesitancy has fueled market panic.
The chairman of the Eurogroup of finance ministers, Jean-Claude Juncker, said that at Germany's insistence, all ministers would discuss with their national banking sector the possibility of voluntary bank contributions to the aid package.
Some 10 billion euros of the overall package was earmarked to help stabilize the Greek banking sector if necessary, EU Economic and Monetary Affairs Commissioner Olli Rehn said.
Asked whether a similar bailout would be available for other euro zone countries, Rehn told a news conference Greece was a particular case that could not be compared to any other state.
The euro zone loans will carry an interest rate of about 5 percent -- half the rate demanded by markets last week to buy Greek debt, but nearly 2 percentage points more than the rate on Germany's benchmark bonds.
European Commission and the International Monetary Fund will monitor Greece's progress quarterly and loan disbursements will be tied to those reviews.
Telling angry Greeks to choose between the painful rescue or economic collapse, the government now aims to bring its towering budget deficit back to the EU limit by 2014, two years later than originally promised.
"These measures are tough and unfair," said Stathis Anestis, a spokesman for private sector union GSEE. "They lead workers to misery and the country deeper into recession.
Economists were more positive. "The aid package will help defuse the primary cause of concern for creditors which is the imminent risk of default," said Lena Komileva, head of G7 market economics at Tullett Prebon. But she noted that there was still a question mark over political approval across Europe.
Underlining the challenge facing Merkel, German politicians voiced reluctance to approve the rescue. Social Democratic opposition leader Frank-Walter Steinmeier said his party would take a lot of convincing to support the bailout.
A conservative ally of Merkel demanded that Athens be put under stricter tutelage by sending a European Commissioner to oversee spending cuts and accounting. "We can't give Greece any blank cheques," said North Rhine-Westphalia state premier Juergen Ruettgers, who faces election defeat next Sunday.
The Greek rescue dwarfs the previous record bailout. South Korea -- a country with a population nearly five times that of Greece -- obtained a $58 billion rescue package from donors including the IMF during the Asian financial crisis in 1997.
COLLAPSE OR SALVATION
Declaring Greece faced a choice "between collapse or salvation," Finance Minister George Papaconstantinou announced a three-year public sector pay freeze, further cuts in civil servants' benefits, higher sales and fuel taxes, an increase in the effective retirement age and reductions in pensions.
Papaconstantinou said the deal would cover a large part of Greek borrowing needs for the next three years. In return Athens promised to slash its budget deficit to the EU limit of three percent of GDP by 2014 from 13.6 percent last year.
A fund backed by the IMF and EU would be set up to help Greek banks.
Papaconstantinou said Greece's public debt would soar to nearly 150 percent of GDP -- a higher peak than forecast earlier -- but start falling from 2014. Athens would return to commercial borrowing when "appropriate," he added.
The German government, which is to contribute 8.4 billion euros in the first year, says it will try to push the necessary law through the lower house of its parliament by this Friday.
Economists say that if the rescue fails to calm markets, European countries could end up footing a bill of half a trillion euros ($650 billion) to save several other nations.
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