Greece asked European governments and the IMF on Friday to trigger billions of euros in emergency loans in what could be the largest state bailout ever attempted.
Prime Minister George Papandreou asked for the 45 billion euro ($60.5 billion) package put together by the European Union and International Monetary Fund to be activated after months of markets pushing Greek borrowing costs ever higher, undermining the country's efforts to cut its 300 billion euro debt load.
It is imperative that we ask for the activation of the mechanism, Papandreou said on live national television and radio from the remote Aegean island of Kastellorizo.
European markets rallied on the announcement but investors quickly concluded that the long-awaited bailout would only provide a short-term solution to the Greek debt crisis.
After bouncing initially, the euro slipped to 1.3305.
But the premium investors demand to buy Greek 10-year government bonds rather than euro zone benchmark Bunds tightened to 530 basis points versus 611 basis point at its peak on Thursday.
This certainly does not mark the end of the crisis, there's still much further to go. They've still got the medium-term problems of getting their public finances in order, and obviously the issue of competitiveness, said Ben May, European economist at Capital Economics.
Time is pressing, with Greece needing assistance before it has to redeem an 8.5 billion euro bond on May 19.
Euro zone officials said it could take a week for the European Commission and European Central Bank to decide if the request was valid and for euro zone finance ministers then to take a formal decision.
There are no deadlines, Commission spokesman Amadeu Altafaj told a regular news briefing.
Some investors had expressed exasperation with the socialist government which, caught between punishing market forces abroad and Greek workers fearful of painful austerity measures, was hesitant to ask for help.
Greek bond yields hit 12-year highs on Thursday as doubts about its ability to avoid default intensified when European Commission data showed its large public deficit was even worse than feared and Moody's Investors Service downgraded its rating of Greek government debt.
The budget figures were announced as tens of thousands of Greek nurses, teachers and other public workers staged a one-day strike against the government's austerity measures.
Athens still faces some opposition in Germany, where a majority of voters are against helping the long-time budget offending country against the backdrop of a key state election on May 9.
In the runup to the vote, German political parties have expressed resistance to approving the aid in a required parliamentary vote, but senior officials said on Friday it should not jeopardize the rescue package.
Because Greece would not need all the aid immediately, the International Monetary Fund could supply the first tranche if necessary, a member of the ruling coalition said, speaking on condition of anonymity. Then European governments could step in depending on how quickly they can approve aid nationally.
Another question is whether the 30 billion euros pledged by euro zone states and 10-15 billion more from the IMF would be enough to cover the 39 billion euros in debt Greece has coming due in the next 12 months, plus other costs forecast in the 2010 budget deficit.
Papandreou, who won an election last year pledging to tax the rich and support the poor, has come under increasing pressure,
A poll showed on Friday his support was declining and that Greeks fear the aid package will hit their living standards.
After winning power last October, his government suddenly announced Greece's 2009 budget deficit would be twice as big as a previous estimates -- and four times the EU ceiling.
(Writing by Mike Peacock; editing by John Stonestreet)