In crisis, Greece accepts rescue from IMF, EU
ATHENS — Hobbled by exorbitant borrowing costs, Greece triggered an emergency aid plan yesterday to draw cash from the International Monetary Fund and countries that use the euro — the first test of whether the EU is prepared to bail out one of its members.
The package has enough money to keep Greece from defaulting on its massive debts anytime soon. But Athens still faces years of painful cutbacks and questions about its long-term finances, raising worries that its troubles will affect other indebted members of the European Union and further harm the euro currency.
The three-year plan adopted in Brussels recently and hailed as a sign that Europe can cope with the crisis will provide Greece with loans: Euro-zone members will contribute $40 billion at interest rates of about 5 percent, while the IMF will chip in about $13.4 billion this year. Exact figures for the following years have not been made public.
European governments made the financial assistance available to fend off a Greek default, which would deal a serious blow to the euro currency, shake market confidence, and inflict losses on banks that invested in Greek bonds. It also aims to keep Greece’s troubles from spreading to other financially weak euro-zone governments, such as Portugal and Spain.
While the aid would stave off default for now, it raises more questions: Will other governments ask for a bailout, and will assuming the financial burdens of Greece mean shakier finances and higher borrowing costs for other euro-zone countries?
Greece is under no illusions that the plan will resolve all the problems of a country that has a debt of $400 billion and other serious fiscal issues.
But Athens hopes the plan, which will allow it to refinance its debt, gives it breathing space to push through tough reforms.