LONDON -- Pushed to the brink of bankruptcy, Greece on Friday requested a massive, $56 billion rescue that is aimed at preventing a financial meltdown in the heart of Europe and will test the resolve of the European Union to uphold its pledge to bail out the troubled Mediterranean nation.
The desperate move to seek billions from European nations and the International Monetary Fund potentially locks Greece into fresh rounds of austerity cuts and could worsen public unrest. It came as investors lost faith in the accuracy of Greece's financial reporting and as flight of capital was threatening to undermine the Greek banking system.
"The moment has come," Prime Minister George Papandreou said in nationally televised remarks while visiting the Aegean island of Kastelorizo. "Today, the situation in the markets threatens to deconstruct not only the sacrifices of the Greek people, but also the smooth course of the economy."
Greece's decision boosted European stock prices, with markets in London, Paris and Frankfurt all closing up about one percent, and invigorated the Euro, which had sunk to one-year lows against the dollar. But Greek bond markets saw only a modest recovery, as investors remained concerned about the long-term risk of a Greek default even if a bailout is put in place.
Athens had tried to avoid a bailout at all costs, seeing the prospect as deeply embarrassing. But international aid seemed all but unavoidable this week, as there appeared to be no way for the country to borrow enough funds on open markets on keep the government running.
IMF and European officials are now in Athens hammering out a deal, which could take several days to emerge.
