Greece is in huge debt for a long time. Being in such a huge debt burden, the Greek Prime Minister Mr. George Papandreou has asked for the activation of the EU-IMF (Europeon Union International Monetary Fund) financial debt rescue in order to get his country out of debt. On Friday last, he announced that he has requested his finance minister George Papaconstantinou to analyze the economic condition of the country and make a formal request to the IMP director general Dominique Strauss-Kahn for the EU-IMF plan activation. Greece need a lifeline of around $60 billion to bail out the countries ever worst economic situation. It is one of the unprecedented tests in the stability of the entire European Union.
The plan is aimed at covering Greece’s borrowing requirements so that it can avoid being default on other debt repayments. This bail out plan needs to be reviewed by the EU executive and by the European Central Bank. It will also be subject to the approval of all the 15 European Governments who use Euro.
This bail out package will give Greece a breathing space with loans in the huge amount of Euro 30 billion from all other Euro Zone countries at the interest amount of around 5% and about Euro 10 billion from the International Monterey Fund.
Until recent time, Greece opt not to call for financial rescue and to keep a check on borrowing needs but on last Thursday its borrowing costs alarmingly spiralled to an unsustainable levels pushing its interest for Greek 10 year bonds to 9%.
Under the European rules, all the EU governments must keep their budget deficit beneath 3% of GDP. The EU can penalize a nation for not maintaining the limit and crossing the stipulated limit. However, no nation has been so far penalized for this, although Finland and Luxembourg last year has deficits last year within the limit.
Initially Greece did not qualify for the Euro area and joined the group two years after its introduction in 1999 only after understanding the budget gap. Now Greek is in recurring debt. However, Greek request for the rescue may provoke a fight between Eu and the IMF over the control of the entire financial process. The Greek Prime Minister has called the package a ‘loaded gun’ which would help its country lower borrowing costs in the market.