Greece holds talks with IMF, ECB, European Commission on details of rescue package

Greece begins talks on details of rescue

ATHENS, Greece — Greece’s borrowing costs skyrocketed to new record highs Wednesday as the government began crucial talks on the details of a rescue package for the debt-ridden country.

The talks, which are expected to last about two weeks, will focus on the terms and conditions of the joint eurozone-IMF bailout plan agreed in Brussels earlier this month, so the package can be activated quickly if Greece requests the aid.

Eurozone countries have pledged €30 billion ($40.5 billion) in loans for this year but have not spelled out any longer-term commitments. The IMF is expected to contribute a further €10 billion at least.

While Athens has said it would prefer to continue borrowing on the international market, the constantly increasing interest rates it faces make it increasingly likely it will ask for the rescue package to be activated. The government needs to raise about €10 billion in May, and has €8.5 billion worth of 10-year bonds maturing on May 19.

“Recent developments confirmed a widespread feeling: investors want to make sure that the aid plan for Greece is no bluff,” UniCredit said in a note to investors.

The interest rate gap, or spread, between Greek 10-year bonds and German ones — considered a benchmark of stability — spiked to new record highs of 5.18 percentage points Wednesday afternoon, before narrowing slightly again. The spreads translate into prohibitively high interest rates of about 8 percent, more than twice those of Germany’s.

The high rates reflect market concern about the country’s ability to pay back its debts. A default by a eurozone country would be a serious blow to the euro currency that is shared by 16 European Union nations.

Struggling to cope with a debt pile of €300 billion ($406 billion), Greece needs to borrow about €54 billion this year alone and has a projected public debt of more than 120 percent of gross domestic product through 2011, before easing slightly the following year.

The head of the Greek Federation of Enterprises urged the government to activate the rescue plan immediately.

“I consider it my duty to stress that it is an immediate and vital need for the country to activate the support mechanism without further delay,” Dimitris Daskalopoulos said in a statement. “Any other choice would be disastrous for the country. It leads inevitably to national bankruptcy and the country’s exit from the eurozone.”

On Tuesday, the government shaved its May borrowing requirement by raising €1.95 billion ($2.62 billion) in a 13-week treasury bill auction that was more than four times oversubscribed, the public debt management agency said.

But the country cannot go on paying such punishingly high interest rates.

“The activation of the aid plan is the easiest and most sensible way out of the crisis. As the May 19 redemption is only four weeks away, action needs to be taken quickly,” UniCredit said, adding that it was likely that the interest rate gap between German and Greek 10-year bonds would narrow following the activation, “although we should not expect a huge rally until the structural problems are correctly addressed.”

Finance Minister George Papaconstantinou, who heads to the United States Friday to hold talks with IMF chief Dominique Strauss-Kahn and U.S. Treasury Secretary Tim Geithner, has ruled out the possibility of debt restructuring. On Tuesday, he stressed that the existence of the rescue package means Greece will not default.

“If our country activates the mechanism, the approval will be very rapid. So there is no way that Greece will be left out on a limb in May — either through borrowing on the markets or through the support mechanism,” he said.

The government is also implementing a harsh austerity program that has cut civil servants’ pay, frozen pensions and hiked taxes in an attempt to curb the country’s debt.

But the measures have met with opposition from labor unions, who have staged a series of strikes. State hospital doctors began a 48-hour strike Wednesday against wage cuts, while members of a Communist-backed trade union also protested, disrupting ferry services at Greece’s main port of Piraeus.

Civil servants are to walk off the job for 24 hours Thursday, although air traffic controllers abandoned plans to join the strike because of the air travel chaos caused by the Icelandic volcanic ash cloud.

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Associated Press writers Derek Gatopoulos and Nicholas Paphitis in Athens contributed to this report.