EU and IMF impose tough regime on Greece
The International Monetary Fund and the European Union have told the Greek government to cut its budget deficit by 10 percentage points by 2011, a saving of 25 billion euros in the next two years, in order to receive international financial assistance. Meanwhile, French President Nicolas Sarkozy says France is determined to support Greece and the euro.
Greece will have to cut public sector wages and increase taxes. An increase of one or two percentage points to VAT was also discussed at the meeting.
Greek stocks jumped by nearly 6 per cent at midday on Thursday and Greek bond yields dropped after Germany appeared to relax its opposition to a European bailout.
Germany has been the most vocal opponent of a bailout, suggesting Greece sell off some of its islands and insisting that it guarantee hardline austerity measures.
The Athens stock exchange index also climbed and pressure on Greek borrowing costs also eased.
The country's public deficit grew to 13.6 per cent of GDP last year and the government says it will cut it by four percentage points this year.
But this week, the rating agency Standard and Poor's downgraded Greece's debt to junk, amid concerns this was an unrealistic target. The prices of Eurozone assets plunged on the news.
Resolving the Greek debt crisis is seen as vital to preserving the credibility of the eurozone and protecting other debt-laden countries, notably Spain and Portugal, from financial crisis.
It is also important to come to a decision before May 19 when some 8.5 billion euros of Greek debt is due to be repayed.
Economist Gernot Nerb from the Institute for Economic Research in Munich told RFI the plan will cost about 120 billion euros over three years. The first 45 billion will be injected immediately and the rest will come over the next two and half years.
Three members of Greece's far-left extremist group on Thursday criticised the rescue plan.
"The hawks of the International Monetary Fund and the European Union and the socio-fascists in the government want to save the Greek capitalists, the banks, the big businesses," said the Revolutionary Struggle members, who were arrested on 9 April.
Since March, police have arrested six people they say have links to the Revolutionary Struggle movement and uncovered a weapons cache containing a submachine gun, Kalashnikov rifles, a rocket launcher and other weapons.