April 23 (Bloomberg) -- Greece called for activation of a financial lifeline of as much as 45 billion euros ($60 billion) in an unprecedented test of the euro’s stability and European political cohesion.
The appeal for help from the European Union and International Monetary Fund follows a surge in borrowing costs to what Greek Prime Minister George Papandreou called unsustainable levels that undermine efforts to cut a budget deficit of more than four times the EU limit. Greek bonds rebounded and the euro rose.
“It is a matter of national need to ask officially” for the activation of the EU-led aid mechanism, Papandreou said in a televised address from the Greek island of Kastelorizo.
With national debt of almost 300 billion euros and bond yields exceeding junk-rated nations such as the Philippines, Greece faces a fiscal mess that threatened to spread to Spain and Portugal, forcing the EU to set up a standby aid facility. At stake is the future of the euro 11 years after its creators gave the European Central Bank responsibility for interest rates while leaving fiscal policy in national capitals.
The request came one day after the yield on the country’s benchmark two-year note topped 11 percent, nearing that of Pakistan, and Moody’s Investors Service lowered Greece’s creditworthiness by one notch to A3, saying it was considering a further cut to junk.
After Papandreou’s announcement, the 2-year yield, which yesterday rose above 10 percent, declined 82 basis points to 9.481 percent. The euro snapped six days of declines to rise 0.1 percent to $1.3309.
Yup. Like I said a few months ago, it was only a matter of time for Greece to ask for a bailout. Today was it.
