Greek Fin Min: Greece has not asked for activation of EU-IMF rescue package

Greek Fin Min: Athens not asking for rescue

ATHENS, Greece — Debt-ridden Greece has not asked for the activation of a euro-zone and International Monetary Fund rescue plan designed to prevent a default, but details of how the plan would operate are being worked out, the finance minister said Friday.

Greece has faced spiraling borrowing costs in the last few days, a sign that markets fear the country will be unable to pay off its debts and that a bailout may be needed soon.

The country has been gripped by a debt crisis for months, and in March eurozone leaders agreed on a hard-fought bailout plan that would provide Greece with bilateral loans and IMF funds to avoid default and protect the euro. Athens had hoped the existence of the rescue package would calm markets and bring down the borrowing costs.

Asked whether Greece would seek help, Finance Minister George Papaconstantinou said that “no such issue has been raised.”

“We have said that Greece does not intend to make use of the mechanism but it is very important for our country for this safety net to exist,” he said after meeting with Prime Minister George Papandreou to discuss the situation.

But the rescue plan is vaguely worded and has not eased market concerns.

Papaconstantinou said the details of how the mechanism would operate were being worked out.

“In the last few days, there has been, as scheduled, a detailing of this mechanism, in other words the exact terms of how it would work,” he said.

Under the vaguely-worded rescue plan, euro-zone leaders pledged to provide support with bilateral loans and IMF funds to prevent a default and protect the euro. The loans would only come with unanimous approval of all 16 euro-zone members — including Germany, which has been reluctant to bail out Greece — and only as a last resort.

German Finance Ministry spokesman Michael Offer said there was no need to activate the plan as Greece has made no such request, and insisted that Athens should not expect cut-price interest rates.

“I would advise no one to doubt that this safety net stands ready and, in case of necessity, will be deployed at short notice,” he said in Berlin.

Offer said the EU summit declaration made clear that “the aim of this last-resort mechanism should not consist of providing funds at average rates for the euro currency area, but in providing incentives for the fastest possible return on the financial market to prices that do justice to risks.”

Separately, Italian Premier Silvio Berlusconi and French President Nicolas Sarkozy both voiced backing for Athens, with the Italian leader saying “Greece has all our support.”

Speaking at a joint news conference in Paris, Sarkozy said the rescue plan was in place and “we are ready to activate it at any time” if Athens asks.

German spokesman Offer in Berlin noted that Greece had succeeded in covering its refinancing needs so far, and that “there is no reason now to doubt that Greece will succeed and certainly no reason to think about what size any aid payments might need to have.”

The government says it has already covered its borrowing requirements for April, but needs to raise more than €10 billion ($13.3 billion) in May.

The country’s public debt agency said on Friday that Greece would auction €1.2 billion ($1.6 billion) in 26 and 52 week treasury bills next week. It said the auction would be held on Tuesday in book entry form.

Greek borrowing costs that had spiked sharply in the past few days began to ease slightly, although they remained alarmingly high Friday. The interest rate gap, or spread, between Greek 10-year government bonds and the German equivalent, considered a benchmark of stability, edged lower to about 3.97 percentage points from Thursday’s high of 4.48 percentage points. But that still means Greece would have to borrow at more than twice the cost of Germany.

Papaconstantinou said the government was concerned by the high rates, but that they believed they would fall as market confidence was restored.

“We consider that they don’t reflect the true state of the economy, nor the effort and the results that the government has already achieved,” Papaconstantinou said. “But as time goes by, I believe that these will be understood in the markets and our international partners, and so we will have more reasonable borrowing interest rates.”

Greece on Thursday said the country’s first quarter budget deficit figures were better then expected, with the January-March shortfall declining to €4.3 billion ($5.72 billion) from €7.1 billion ($9.44 billion) in the first quarter of 2009.

But government officials were sobered by more dismal data on the economy a day later. Greek industrial output plunged by 9.2 percent in February on the year, and inflation also rose to 3.9 percent in March.

Greek stocks rebounded Friday after three days of heavy losses. The benchmark Athens stock exchange general index was up 1.88 percent at 1961.98 points in late afternoon trading.