* Bailout is largest by far for a country
* Papandreou says Greeks must be ready for long sacrifice
* Athens promises extra 30 bln euros in cuts over 3 years
* Merkel backs Greek programme, vows to work for approval
(Adds Obama comment)
By Lefteris Papadimas and Jan Strupczewski
ATHENS/BRUSSELS, May 2 European finance
ministers triggered a record 110 billion euro ($147 billion)
bailout for debt-stricken Greece on Sunday after Athens
committed itself to years of painful austerity.
After weeks of tough talk and procrastination due to fierce
public opposition to handouts for the Greeks, German Chancellor
Angela Merkel finally threw her full support behind the EU/IMF
package, vowing to fight for parliamentary approval by Friday.
Euro zone ministers, meeting in emergency session, approved
the three-year package of emergency loans and agreed the first
funds would be released in time for Athens to make a big debt
repayment to creditors on May 19.
In exchange for by far the largest bailout ever assembled
for a country, Prime Minister George Papandreou announced
further spending cuts and tax increases totalling 30 billion
euros over three years on top of tough measures already taken.
"It is an unprecedented support package for an unprecedented
effort by the Greek people," a sombre Papandreou, wearing a dark
purple tie, the colour used for funerals in Greece, told a
televised cabinet meeting.
Merkel called the programme very ambitious and said she
would work to achieve swift parliamentary approval of Berlin's
share -- the biggest of any EU state at about 22 billion euros
out of 80 billion -- of the rescue loans.
"I'm going to work for the Greece programme and its
passage," she told reporters in Bonn, adding it was essential
for the stability of the euro single currency.
U.S. President Barack Obama told Papandreou on Sunday he
welcomes Greece's "ambitious" reform program, the White House
said. He also praised the "significant support" from the IMF and
Euro zone leaders will hold a special summit on Friday to
formally launch the rescue after obtaining parliamentary
approval where necessary. International Monetary Fund chief
Dominique Strauss-Kahn forecast the IMF board would approve its
30 billion euro contribution to the package this week.
Greeks have already taken to the streets to demonstrate
against the austerity drive and past governments have backed off
from reforms to defuse often violent protests. But Papandreou, a
Socialist with a strong personal approval rating, has insisted
the country must face the bill for years of drift and graft.
"These sacrifices will give us breathing space and the time
we need to make great changes," he said. "I want to tell Greeks
very honestly that we have a big trial ahead of us."
The first rescue of a member of the 16-nation euro zone aims
to stem a debt crisis that has shaken financial markets, dented
confidence in the euro and begun to spread to fellow euro zone
weaklings Portugal and Spain. Berlin's hesitancy has fuelled
The chairman of the Eurogroup of finance ministers,
Jean-Claude Juncker, said that at Germany's insistence, all
ministers would discuss with their national banking sectors the
possibility of voluntary contributions to the aid package.
Some 10 billion euros of the overall amount was earmarked to
help stabilise the Greek banking sector if necessary, EU
Economic and Monetary Affairs Commissioner Olli Rehn said.
Asked whether a similar bailout would be available for other
euro zone countries, Rehn told a news conference Greece was a
particular case that could not be compared to any other state.
The euro zone loans will carry an interest rate of about 5
percent -- just half the rate demanded by markets last week to
buy Greek debt, but nearly 2 percentage points more than the
rate on Germany's benchmark bonds.
European Commission and the International Monetary Fund will
monitor Greece's progress quarterly and loan disbursements will
be tied to those reviews.
Telling angry Greeks to choose between the painful rescue or
economic collapse, the government now aims to bring its towering
budget deficit back to the EU limit by 2014, two years later
than originally promised.
"These measures are tough and unfair," said Stathis Anestis,
a spokesman for private sector union GSEE. "They lead workers to
misery and the country deeper into recession." [ID:nLDE64105F]
Economists were more positive. "The aid package will help
defuse the primary cause of concern for creditors which is the
imminent risk of default," said Lena Komileva, head of G7 market
economics at Tullett Prebon. But she noted that there was still
a question mark over political approval across Europe.
Underlining the challenge facing Merkel, German politicians
voiced reluctance to approve the rescue. Social Democratic
opposition leader Frank-Walter Steinmeier said his party would
take a lot of convincing to support the bailout.
A conservative ally of Merkel demanded that Athens be put
under stricter tutelage by sending a European Commissioner to
oversee spending cuts and accounting. "We can't give Greece any
blank cheques," said North Rhine-Westphalia state premier
Juergen Ruettgers, who faces election defeat next Sunday.
The Greek rescue dwarfs the previous record bailout. South
Korea -- a country with a population nearly five times that of
Greece -- obtained a $58 billion rescue package from donors
including the IMF during the Asian financial crisis in 1997.
COLLAPSE OR SALVATION
Citing a choice "between collapse or salvation", Finance
Minister George Papaconstantinou announced a three-year public
sector pay freeze, further cuts in civil servants' benefits,
higher sales and fuel taxes, an increase in the effective
retirement age and reductions in pensions.
Papaconstantinou said the deal would cover a large part of
Greek borrowing needs for the next three years. In return Athens
promised to slash its budget deficit to the EU limit of three
percent of GDP by 2014 from 13.6 percent last year.
Papaconstantinou said Greece's public debt would soar to
nearly 150 percent of GDP -- a higher peak than forecast earlier
-- but start falling from 2014. Both he and EU and IMF officials
insisted there had been no talk of restructuring Greece's debts.
Athens would return to commercial borrowing when
"appropriate", he added.
Economists say that if the rescue fails to calm markets,
European countries could end up footing a bill of half a
trillion euros ($650 billion) to save several other nations.
(Writing by Noah Barkin/Paul Taylor; Editing by Charles Dick)