Greece has sealed a deal with the EU and IMF that opens the door to a multi-billion euro financial bailout but will require major sacrifices from the Greek people, prime minister George Papandreou said today.
Those sacrifices amount to budget cuts of €30 billion over three years, on top of measures already agreed and aimed at bringing a towering budget deficit back to the EU limit by 2014.
The government told Greeks, who have already taken to the streets in protest against the austerity drive, that they had to chose between a rescue or an economic collapse.
The aid package, expected to total up to €120 billion over three years, represents the first rescue of a member of the 16-nation euro zone and is aimed at stemming a debt crisis that has shaken markets worldwide.
"It is an unprecedented support package for an unprecedented effort by the Greek people," a sombre Mr Papandreou told a televised cabinet meeting.
Mr Papandreou said that unless Greeks were willing to make major sacrifices the country would go bankrupt.
"These sacrifices will give us breathing space and the time we need to make great changes," he added. "I want to tell Greeks very honestly that we have a big trial ahead of us."
Finance minister George Papaconstantinou today gave details of the agreement before heading to a meeting with his euro zone counterparts in Brussels.
"We are all being called to make a choice," he said. "The choice is between collapse or salvation. The choice is between fleshing out a very ambitious and difficult three-year programme of fiscal consolidation, a programme of structural reforms ... or the country reaching an absolute dead-end."
Athens promised to slash its budget deficit to the EU limit of three per cent of GDP by 2014 from 13.6 per cent last year.
"Today we have to flesh out an economic programme which sees fiscal efforts to cut the deficit by 11 (percentage) points of GDP, or €30 billion, starting from today and over the next three years," Mr Papaconstantinou said.
Salaries and pensions in the public sector would be frozen during the three-year programme while a fund backed by the IMF and EU would be set up to help Greek banks. Value-added tax and duties on fuel and alcohol will rise sharply.
Mr Papaconstantinou forecast Greece's public debt would soar to nearly 150 per cent of gross domestic product but then start falling from 2014. However, the plan would cover a large part of Greece's borrowing needs for the next three years, with Athens returning to commercial borrowing when "appropriate".
In a statement, European Commission president Jose Manuel Barroso recommended that Europe activate the aid, calling the package of austerity measures "solid and credible".
"This assistance will be decisive to help Greece bring its economy back on track and preserve the stability of the Euro area," Mr Barroso said.
Greece and its international backers hope the deal can stem a crisis that has shaken markets worldwide, stoked fears of contagion to other euro zone members such as Portugal and Spain, and exposed deep divisions in the 11-year old currency area.
Yesterday, thousands marched in May Day demonstrations in Athens shouting slogans against austerity measures they say will hurt the poor and drag the country further into recession.
"No to the IMF's junta," protesters chanted, referring to the military dictatorship which ruled Greece from 1967 to 1974. "Hands off our rights! IMF and EU Commission out," the protesters shouted as they marched to parliament.
More than half of Greeks say they will take to the streets if the government agrees to new austerity measures, according to an ALCO poll released on Friday by the newspaper Proto Thema.
All other steps taken so far by Greece and the EU have failed to calm months of market jitters that have pushed the country's borrowing costs to record highs.
Economists say that if euro states fail to engineer a rescue that calms markets, they could end up footing a bill of half a trillion euro to save several nations.
Both Portugal and Spain saw their debt downgraded by ratings agencies this week and could become targets for the market unless they tackle their deficits swiftly.
Reuters