Greece gets $18bn from EU; to repay debt

Greece gets $18bn from EU; to repay debt
REUTERS, May 19, 2010, 12.03am IST

ATHENS: Greece received a 14.5 billion euro ($18 billion) loan from the European Union on Tuesday and can now repay its immediate debt, but still faces a mammoth task to claw its way out of recession.

Concerns that other EU countries such as Portugal and Spain could follow Greece and need aid from the bloc have hit the euro, while investors are still watching Athens to see whether its austerity plan will stave off the risk of default. The EU and IMF agreed at the beginning of the month to lend Greece 110 billion euros ($137 billion) over three years to help it pay billions in expiring debt after being shut out of financial markets by the high cost of borrowing.

With 5.5 billion euros already delivered by the IMF, Greece has now received the first 20-billion euro tranche of the loans, the Greek finance ministry said in a statement. Athens now can and will repay an 8.5 billion 10-year euro bond which matures on Wednesday, a government official said. "Greece no longer has the liquidity anxiety, it will not need to go to markets to borrow to pay salaries and pensions," EFG Eurobank economist Gikas Hardouvelis said. Greece will be paying interest of around 5%, well below current market yields of well over 7% for Greece's 3-year bonds.

Though it has gained a breathing space, Greece must now convince markets it can rein in its deficits so that it can eventually start borrowing again. "The programme has been designed so that Greece is able to stay away from the financial markets through the end of 2011 and the first quarter of 2012. We don't expect that to be the case, we want to come back to markets much sooner," finance minister George Papaconstantinou said in Brussels.

Socialist Prime Minister George Papandreou's government has already implemented sizeable public sector wage cuts and raised taxes in return for the EU/IMF bailout.