Greek prime minister: Agreement reached on deal with IMF and EU for rescue package

Greek leader says agreement reached on aid deal

ATHENS, Greece — Greece has reached agreement with the EU and IMF on an aid package to stave off bankruptcy, and has no choice but to implement new harsh austerity measures, including cuts to civil servants’ salaries and pensions, Prime Minister George Papandreou said.

Papandreou said his government reached an agreement with the International Monetary Fund and the European Union on the measures needed to free up a €45 billion ($60 billion) joint rescue package for this year.

“The avoidance of bankruptcy is the national red line,” he told the Cabinet in a televised speech. “I want to be clear to all. I have done and will do everything so the country does not go bankrupt.”

Papandreou called on Greeks to make “great sacrifices” to avoid a catastrophe, and said the country’s problematic civil service would bear the brunt, with cuts to salaries and pensions.

Parliamentary deputies would also lose their holiday bonus salaries, known as the 13th and 14th salaries — but such cuts will not be imposed on the private sector, which had been widely feared.

There will also be further hikes in consumer taxes, and deep cuts in defense spending and hospital procurement, the prime minister said.

“The alternative course would be a catastrophe and greater pain for all,” he said.

He did not give details about the new measures, which Finance Minister George Papaconstantinou was to outline shortly after the Cabinet meeting.

Papaconstantinou will then fly to Brussels for an emergency meeting with the other 15 finance ministers of the EU countries that use the euro, who must approve the EU’s contribution to the rescue. Under the plan, eurozone countries will extend loans to Greece at an interest rate of about 5 percent — far lower than the prohibitively high costs Greece would face if it were to try to borrow money on the market at the moment.

The plan extends over three years and has been reported to be worth a total of €120 billion over that time.

Greek unions planning a general strike Wednesday against the new cuts. Violent clashes broke out Saturday during anti-government protests at May 1 Labor Day rallies.

The government will submit special emergency legislation to Parliament that was agreed upon with the EU and the IMF at a negotiating session Saturday. Parliament is expected to approve the measures by Friday.

“Economic reality has forced us to take very harsh decisions,” Papandreou said, adding that “This is the only way we will finance our €300 billion debt.”

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Associated Press writer Demetris Nellas contributed to this report.