Greece paves way for IMF rescue deal by agreeing savage cuts

Greece and the wider eurozone scrambled back from the brink of disaster again yesterday as the outline of an IMF/eurozone rescue package emerged.

The Greek prime minister, George Papandreou, told his nation's parliament that it must accept the main condition of the emergency loans – which would mean a further €24bn (£20.8bn) austerity package of tax rises and reductions in public spending. The spectre of a Greek default has retreated, if only temporarily.

Mr Papandreou told Greek MPs: "The measures we must take, which are economic measures, are necessary for the protection of our country. For our survival, for our future. So we can stand firmly on our feet. It is a patriotic duty to undertake this, with whatever political cost, which is tiny faced with the national cost of inaction and indecision."

Some €45bn (£39bn) this year, and a total three-year funding of €120bn (£104bn), is said to be being organised by IMF, European Central Bank (ECB) and European Commission officials. Eurozone finance ministers will meet tomorrow to settle any outstanding issues, chaired by Jean-Claude Juncker, finance minister of Luxembourg.

Of the initial €45bn (£39bn), some €30bn (£26bn) is being provided though bilateral loans to Greece by individual eurozone members, €8bn (£7bn) being the German share.

The balance will come from the IMF. Jean-Claude Trichet, the president of the ECB, and Dominique Strauss-Kahn, the IMF's managing director, met Bundestag members earlier this week to plead for their support for the measures.

Markets were panicked earlier this week by fears that the rescue deal would not be concluded by the time Greece's next debt repayment falls due on May 19. Greek banks suffered a further blow as Moody's, the international credit-ratings agency, downgraded their creditworthiness.

The most potent risk to a sustained European economic recovery is a

"contagion" where the problems in Greece spread to other peripheral economies such as Portugal and Spain, and where Europe's banking system freezes up though fear of substantial losses on lending to Greece.

Throughout Thursday and yesterday, many European banks began to show reluctance to lend to each other, as they did in the first phase of the original "credit crunch" in 2007. Such a contraction of credit could quickly turn into another financial crisis and push the real economy into recession again. It would also provoke a widespread devaluation of the portfolios of government bonds held by banks, insurance companies and investment funds, and trigger a further crisis of confidence about the survival of the euro. Because of her size, Spain represents the biggest risk to the survival of the single currency. Hence the pressure on European leaders, particularly in Germany, to agree and fund a deal and end the "contagion".

Despite fierce opposition to bailing out Greece within Germany, Chancellor Merkel has continued to defy her critics and back the move, with President Sarkozy of France, who will meet his Cabinet today to approve their loan. Germany's bilateral loan to Athens ought to be cleared by the Bundestag next week.

Risks remain, however. The Greek unions and opposition groups have promised yet more protests and strikes in response to the proposal that the Greek retirement age be raised from an average of 63 to 67, and the abolition of the "13th and 14th month" pay packets, payable to public sector pay workers at Easter and Christmas. Complaints by German MPs about why they should pay for Greeks to retire early has been one of the more potent arguments against the rescue. Some in Berlin would prefer to see Greece default or to leave matters entirely to the IMF.

A summit of European Leaders to formalise the agreement is mooted for 10 May. Deutsche Bank Chief Executive Josef Ackermann is helping coordinate efforts by Germany's private sector to support a rescue package for Greece, aiming to raise €1bn (£870m).

Guido Westerwelle, the German vice chancellor, stressed the need for the private sector to be involved in supporting the Athens rescue effort. "I expect that, just as in Germany banks will participate in the consequences of the economic and financial crisis through the famous bank levy that we agreed upon in the government, so also in Europe banks will want to make their contribution and will do so."

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
Arts and Entertainment
TV
Voices
The Palace of Westminster is falling down, according to John Bercow
voices..says Matthew Norman
Sport
Steve Bruce and Gus Poyet clash
football
ebooks
ebooksA special investigation by Andy McSmith
News
Graham Norton said Irish broadcaster RTE’s decision to settle was ‘moronic’
TV
Arts and Entertainment
Jake and Dinos Chapman were motivated by revenge to make 'Bring me the Head of Franco Toselli! '
arts + ents Shapero Modern Gallery to show explicit Chapman Brothers film
Arts and Entertainment
Kurt Cobain performing for 'MTV Unplugged' in New York, shortly before his death
music Brett Morgen's 'Cobain: Montage of Heck' debunks many of the myths surrounding the enigmatic singer
Life and Style
life
Sport
Brendan Rodgers
football The Liverpool manager will be the first option after Pep Guardiola
News
Amazon misled consumers about subscription fees, the ASA has ruled
news
Arts and Entertainment
Myanna Buring, Julian Rhind-Tutt and Russell Tovey in 'Banished'
TV Jimmy McGovern tackles 18th-century crime and punishment
Arts and Entertainment
Paul Whitehouse as Herbert
arts + ents
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Lettings and Sales Negotiator - OTE £46,000

£16000 - £46000 per annum: Recruitment Genius: This is an opportunity to join ...

Recruitment Genius: Home Care Worker - Reading and Surrounding Areas

£9 - £13 per hour: Recruitment Genius: This is a great opportunity to join a s...

Recruitment Genius: Key Sales Account Manager - OTE £35,000

£25000 - £35000 per annum: Recruitment Genius: Have you got a proven track rec...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn