Greece in plea for £39bn bailout

Prime minister George Papandreou asked to access the 45 billion (39bn) package after investors – fearing a possible default – pushed borrowing costs to record levels, undermining Athens' efforts to cut its 300bn debt pile.

"It is a national and imperative need to officially ask our partners in the EU for the activation of the support mechanism we jointly created," Mr Papandreou said in a statement broadcast live on Greek TV from the remote Aegean island of Kastellorizo.

European markets rallied on the announcement, but fell back as investors said the long-awaited bailout, which could be the largest multilateral rescue of a country ever tried, would bring only short-term relief.

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There were concerns that the bailout could force harsher austerity on Greece, deepening its recession, and that it would set a precedent for other eurozone underperformers.

The Greek crisis has hit confidence in the single currency, shared by 16 of the 27 European Union member states, sparking fears it could spread to fellow weaklings Portugal and Spain, and fuelling scepticism in some quarters about the euro's long-term survival.

"It could be perceived a relief that Greece is taking the financial help, but it does not address the systemic risk and begs the question as to whether countries like Spain may look for the same rescue package in the near future," said Simon Brown, the chief executive ofanalysts Prospreads in London, forecasting further euro weakness.

Torn between punishing global market forces and Greek workers protesting against painful austerity measures, Mr Papandreou's socialist government hesitated over officially asking for aid. However, the turning point came on Thursday when the European Commission revealed Greece's 2009 public deficit was even higher than feared at 13.6 per cent of gross domestic product.

That drove Greek bond yields to 12-year highs, making borrowing prohibitive.

Athens continued talks with the EC, the European Central Bank and the IMF yesterday on a three-year fiscal programme including the aid package. Time is pressing, with an 8.5bn bond due to mature on 19 May. The first tranche of aid is expected to be disbursed before then.

France said it hoped to approve its portion between 3-6 May. German finance minister Wolfgang Schaeublesaid Berlin would make its contribution if the EU, the ECB and the IMF agree Athens needs help.

The United States, which has a veto over IMF decisions, supported Greece's decision to ask for the activation of the aid package, the White House said.

Economists say a rescue is likely to entail further European and IMF aid in 2011 and 2012, and some forecast that Greece will have to restructure its debt.

It could take a week for the EC and ECB to decide if Greece's request is valid and for eurozone finance ministers to then take a formal decision.

The timing could hardly be worse for German chancellor Angela Merkel, facing strong public opposition to any aid for Greece, as she faces a key regional election on 9 May in which the centre-right government's upper house majority is at stake. Germany is Europe's largest economy and would be the biggest contributor to a bailout.

She has had to drop her resistance to any financial assistance for Greece and back down on demanding market rates on loans.

After speaking with Mr Papandreou yesterday, Ms Merkel said: "I'm absolutely in agreement with (foreign minister] Guido Westerwelle that the stability of our currency has priority. On the other hand, we also agree that the savings efforts of Greece have to be credible."