διακυβέρνηση

Greece's economy may crumble without $40bn in emergency aid

The Greek government's cost of borrowing has hit a new high as talks on a joint eurozone and International Monetary Fund (IMF) rescue plan begin.

The interest rate on 10-year government bonds hit 8.3% - the highest since the euro was introduced.

Rates rose as it became clear that talks over the aid package may not be finished until days before a multi-billion-euro loan is due for repayment.

Investors are becoming more convinced that Greece will need to be rescued.

Greece's finance ministry said the talks with the European Commission and the IMF would take about two weeks, with a joint text issued on about 15 May.

On 19 May, Greece is due to repay investors an 8.5bn euros (£7.3bn) bond.

The talks cover austerity measures that Greece must take during the next three years to reduce its 300bn-euro debt mountain.

If all sides can agree the measures, it should help clear the way for a quick payout of up to 40bn euros on offer from eurozone members and the IMF.

In a statement on Tuesday, Greece's finance ministry said: "The discussions concern a three-year programme of economic policies... which can be supported with financial assistance from eurozone members and the International Monetary Fund should Greek authorities decide to request the activation of the mechanism."

Rescue package

The eurozone partners have agreed to offer rescue finance of up to 30bn euros ($40bn; £26bn), with the IMF offering a further 10bn euros.

The talks will discuss the precise terms, conditions, and interest rates that would apply if Greece asks for the aid.

But many observers say it is a case of "when" not "if" Greece needs the aid.

And speculation persists that even 40bn euros might not be enough.

On Tuesday, Axel Weber, a member of the European Central Bank governing council, denied reports that Greece might need as much as 80bn euros to avoid default.

Greek borrowing costs have hit a succession of new highs in recent weeks as investors demand a higher return for lending the government money it needs to repay its debts.

Athens raised almost 2bn euros by selling three-month Treasury bills on Tuesday. However, although the fund-raising was successful, the interest rate was 3.65%, more than twice the level at which Greece raised similar short-term funds in January.

Greece has said its priority is to raise much-needed funds on the financial markets. But the higher the yield on Treasury issues, the bigger Greece's debt-burden becomes.

The country needs to raise about 11bn euros by the end of May, and about another 35bn euros during 2010 to pay its bills, such as public service pensions, and to finance structural reforms.

(BBC NEWS)