Greece pays off creditors with rescue cash

Finance ministry sources said the government redeemed 8.5 billion euros (7.29bn) in expiring 10-year state bonds, which it was unable to raise without outside assistance as wary investors have sent Greek borrowing costs sky-high.

Just a day earlier, the country had received 14.5 billion euro

(12.45bn) from 10 of the other 15 European Union countries that use the euro. The loans are part of a 110 billion euro (94.45bn) joint EU and International Monetary Fund rescue package.

Greece's debt crisis sent shockwaves through global markets and, combined with fears for Europe's struggling economy and German warnings that the future of the euro itself was at stake, sent the common currency to a four-year low against the dollar today.

Athens received the first 5.5 billion euro (4.72bn) tranche from the IMF last week, and the second and final instalment for this year – an estimated 18 billion euros (15.45bn) – is expected in the autumn.

Prime Minister George Papandreou said the bailout had earned the heavily indebted country, whose public finances lie in tatters after years of state overspending, waste and rampant tax evasion, time to sort itself out fiscally.

"This ... gives us this opportunity to breathe and to take the big initiatives for institutional changes in our economy and in the structure of our state itself," Papandreou said.

To secure the foreign loans, his centre-left government took a hatchet to pensions and civil service pay, while pumping up consumer taxes, increasing retirement ages and pledging to fight corruption and tax cheats.

The country's budget deficit reached 13.6 per cent of annual output last year, while its public debt is expected to reach 133.3 per cent of gross domestic product in 2010.

"These changes need to be made, but they must be made with the citizen and not against the citizen," Mr Papandreou said.

"We are going towards a model of sustainable development, using the wealth that our country possesses, investing in new technologies, in new products, in order to ensure that we emerge from the crisis as quickly as possible, in the least painful possible way for our citizens."

Labour unions have staged a series of walkouts against spending cuts in recent months.