Debt-stricken Greece appealed to its European partners and the IMF for emergency loans on Friday, yielding to overwhelming market pressure to set in motion the first financial rescue of a member of the euro zone.
Prime Minister George Papandreou requested the 45 billion euro ($60.5 billion) package after a months-long selloff by investors pushed borrowing costs to record levels and undermined Athens' efforts to cut its 300 billion euro debt pile.
This is the moment. The time that was not granted to us by the markets will be given to us by the support of the euro zone, Papandreou said in a statement broadcast live from the remote, tiny Aegean island of Kastellorizo.
It is a national and imperative need to officially ask our partners in the EU for the activation of the support mechanism we jointly created.
European markets rallied briefly on the announcement but investors said the long-awaited bailout, which could be the largest multilateral rescue of a country ever attempted, would only provide a short-term solution to Greece's debt crisis.
After an initial bounce, the euro was a just touch higher at $1.3308 at 1140 GMT, up 0.1 percent on the day.
The premium investors demand to buy Greek 10-year government bonds rather than euro zone benchmark Bunds tightened to 525 basis points, versus 611 on Thursday, before rebounding back to 570.
The request followed growing doubt from investors that Greece could avoid default and market exasperation at Papandreou's socialist government which, torn between punishing market forces abroad and Greek workers protesting at painful austerity measures, was hesitant to ask for help.
The last straw came on Thursday, when European Commission data showed Greece's 2009 public deficit was even higher than feared at 13.6 percent of gross domestic product, complicating Athens efforts to slash that figure by almost a third this year. That drove Greek bond yields to 12-year highs, making the cost of borrowing prohibitive.
This certainly does not mark the end of the crisis, there's still much further to go, said Ben May, European economist at Capital Economics. They've still got the medium-term problems of getting their public finances in order, and obviously the issue of competitiveness.
TIMING IN FOCUS
Athens continued talks with the European Commission, the European Central Bank and the International Monetary Fund on Friday on a three-year program that includes the aid package. But time is pressing, with an 8.5 billion euro bond due to mature on May 19.
Economists say a rescue is likely to require further European and IMF aid in 2011 and 2012 and some forecast that Greece will have to restructure its foreign debt. French and German banks are among the biggest holders of Greek debt.
Finance Minister George Papaconstantinou is due to travel to Washington for the IMF's annual meeting on Saturday. Greek media said he could ask for IMF board to vote on a deal then, but the Fund has said consultation could take two or three weeks.
It could take a week for the Commission and ECB to decide if Greece's request is valid and for euro zone finance ministers to then take a formal decision, the Commission said.
Everything is going to be done in such a way that the mechanism can be triggered as soon as (necessary) and as is necessary for Greece, spokesman said Amadeu Altafaj said.
He said interest on the loans -- expected to be around 5 percent from euro zone states -- would be in line with a formula worked out by euro zone finance ministers earlier this month. Because the date of the disbursement was not known yet, it was impossible to say now what the exact level would be.
Greece has said the Commission could potentially offer a bridge loan to fill a gap if the aid were not approved in time to cover its funding needs.
Some countries must win parliament approval to release funds, and Athens faces public opposition in Germany, where a majority are against helping the long-time budget sinner against the backdrop of a key state election on May 9.
The timing could hardly be worse for conservative Chancellor Angela Merkel, who has had to drop her initial resistance to any aid for Greece and back down on demanding market rates on loans.
In the runup to the vote, German parties have expressed resistance to giving a green light, but senior officials said 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 from the IMF would 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.
In the longer-term, it's just a sticking plaster over the situation, said Daragh Maher, deputy head of forex strategy at Credit Agricole CIB.
The question remains how can Greece extract itself from its problems, and the situation remains highly uncertain.
Papandreou won an election last year pledging to tax the rich and help the poor but has come under increasing pressure since his government announced Greece's 2009 budget gap was would be twice previous estimates and four times the EU ceiling.
On Thursday, Greek nurses, teachers and other public workers staged a one-day strike against the government's austerity measures, while a poll showed on Friday his support was falling and a majority feared the bailout would hit living standards.
In Athens, many people said they thought the deal had been inevitable, but public sector worker Sofia Hatzaki was angry.
I hit the roof when I heard, she said. I want to scream. This means more austerity measures are coming and recovery is very far away.
(Writing by Mike Winfrey; editing by Paul Taylor)