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Greek rescue deal agreed, but 'big sacrifices' ahead

By Channel 4 News

Updated on 02 May 2010

The European Union and the IMF have agreed a multi-billion euro bailout package for Greece as its leaders warn that they have to make a choice between "collapse or salvation".

greek leaders warn of sacrifices ahead as the bailout deal is agreed (credit (Reuters)

The size of the aid package will be announced later today but is expected to reach a total of €120bn over the next three years.

Greece badly needs the money ahead of its May 19 deadline when it needs to pay debts of €8.5bn back to its creditors.

Greek Prime Minister George Papandreou warned his people that they would have to choose between a painful rescue or economic collapse.

The government is announcing €30bn of cut backs to take place by 2014, with salaries and pensions in the public sector being frozen during that period. Angry Greeks have already taken to the streets to protest against the cuts.

"It is an unprecedented support package for an unprecedented effort by the Greek people" Papandreou said.

"These sacrifices will give us breathing space and the time we need to make great changes.

"I want to tell Greeks very honestly that we have a big trial ahead of us."

Greece - under new management

Over the last couple of weeks a large delegation from the IMF - the global lender of last resort - has been dictating terms in Athens, writes Channel 4 News business reporter John Sparks.

On the table at the country's finance ministry is a colossal loan of 120bn Euros - enough to keep Greece going for three years. But the price for that loan is very high indeed.

Many Greeks are unhappy that Mr Papandreou's government has already introduced a package spending cuts and tax rises. But the painful truth is that they are not enough. The money markets are not lending to Greece because it is considered too big a risk.

That is why the IMF, along with other eurozone nations, have organised a bailout. But only if the government pushes through another round of austerity measures.

The package, to be unveiled this weekend, will include:

- the second rise in VAT this year, to 23 per cent - public sector salaries cut by up to 20 per cent
- all public sector contract workers to lose their jobs
- a severe cut in pensions
- retirement age raised to 67 (average Greek retirement age is 53)

But if the country goes bust, the financial crisis could spread quickly.

Finance Minister George Papaconstantinou echoed the prime minister saying:

"We are all being called to make a choice," said Papaconstantinou.

"The choice is between collapse or salvation. The choice is between fleshing out a very ambitious and difficult three year programme of fiscal consolidation, a programme of structural reforms ... or the country reaching an absolute dead-end."

The bailout, which still needs to be approved by other European leaders next week, is expected to cover a large part of Greece's borrowing needs for the next three years.

In return Greece has to cut its budget deficit by 10.1 per cent to the EU limit of three per cent.

The European Commission President Jose Barroso said the package was "solid and credible" and urged Europe to okay the bailout deal saying:

"This assistance will be decisive to help Greece bring its economy back on track and preserve the stability of the Euro area."

It is hoped this deal will prevent the crisis from spreading to other Euro zone members, particularly Portugal and Spain.

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