Greece sets stage for a possible EU-IMF bailout

Greek Prime Minister George Papandreou yesterday signalled that Athens is preparing to request emergency loans from Europe and the IMF, an unprecedented move that still faces major obstacles.

His comments came as European finance ministers gathered in Madrid for talks on Greece's debt crisis and ahead of meetings in Athens with European and International Monetary Fund officials starting on Monday.

"We are making all the preparatory moves required for a possible request," Mr Papandreou told lawmakers in Athens, adding that activation of the financial rescue package would have to be guided by the national interest.

The three-year loans would run into the tens of billions of euros and be granted at a preferential rate of around five per cent, according to plans agreed by eurozone finance ministers earlier this month.

Greece said on Thursday that it was requesting talks with the IMF, the European Commission and the European Central Bank on a "multi-year programme of economic policies" and to clarify the terms for the possible loans.

Greek newspapers reported that the loans would likely be conditional on further budget cutbacks, including wage cuts in the private sector, a cap on pensions and the closure of some public services and state companies.

"The time for talking is over. The time for painful reality is upon us," the Kathimerini daily said in an editorial.

"The political world has to start preparing public opinion," it said.

Eleftherotypia said the bailout could be "medicine or poison" while Ta Nea said it was a "nightmare package" that would cut salaries and pensions.

European finance officials meeting in Madrid meanwhile sought to play down the potential for any immediate request for the aid from Greece.

"There are no indications that Greece will ask for help today," Jean-Claude Juncker, Luxembourg Prime Minister and head of the Eurogroup of eurozone finance ministers, told reporters.

Spanish Finance Minister Elena Salgado said: "Greece has taken the first steps. But it's up to them to continue."

Greece's 15 eurozone partners have said they are prepared, if asked, to provide this year €30 billion in loans, with another possible €15 billion available from the IMF.

The bailout for Greece, which has the highest budget deficit in the euro area, would be the first time a eurozone member has to be rescued in this way.

Analysts have said the debt trouble afflicting Greece and some other European states will hurt investor confidence in Europe.

The euro has been hit by fears of a possible Greek debt default, with the European single currency trading at $1.3556 during trading in London yesterday, compared to $1.3574 late on Thursday.

The yield - or borrowing rate - on Greek 10-year bonds meanwhile rose sharply to 7.251 per cent compared to 7.123 per cent late on Thursday.