Athens begs for world help to stave off financial ruin

Its prime minister George Papandreou said it was "a matter of national need to ask officially" for the emergency 40 billion (£35 billion) bailout to be activated.

It came after its deficit spiralled to a record 13.6% of gross domestic product and credit rating agency Moody's last night cut its rating on Greek debt from "A2" to "A3".

"The moment has come," said Papandreou. "Our partners will decisively contribute to provide Greece the safe harbour that will allow us to rebuild our ship."

The Greek crisis and its solution is likely to dominate the meeting of G20 finance ministers which starts in Washington tonight.

Chancellor Alistair Darling said: "It's imperative that the Eurogroup and the IMF reach a settlement as soon as they possibly can because it has a huge bearing on pepole's confidence in national institutions."

He denied Britain's budget deficit — which is nearly as high as Greece's as a percentage of GDP — put the UK at risk of needing IMF aid. "Greece is a much smaller economy," he said.

Until now, Athens had preferred to tap bond markets for its borrowing requirements and avoid calling for a rescue.

The euro stabilised on the move — up 0.16p against sterling to 86.61p and 0.09 cents against the US dollar to $1.3302 — and stock markets in Europe rallied.

German Chancellor Angela Merkel said it was vital the European governments worked together to protect the euro.

"The stability of our currency has priority," she said. "We also agree that the savings efforts of Greece have to be absolutely credible."

Sean Maloney, a strategist at Nomura, said: "I don't necessarily think we're out of the woods here because there's a fair bit of wrangling to go in terms of how much the package is going to be, and the terms that are going to be attached to it.

"I think the reaction we've seen so far is understandable but whether it extends another significant amount from here is another question."

Officials in Europe said it may take some time for the aid to be triggered but said everything was being done to ensure eurozone stability and Germany said it was ready to act.

Daragh Maher of Crédit Agricole said: "It's a positive development in the short term. The comments coming out of Germany suggest they won't be stonewalling Greece's request.

"In the longer term, it's just a sticking plaster over the situation. The question remains how can Greece extract itself from its problems, and the situation remains highly uncertain."

The spread between Greek 10-year bonds and German ones — considered a benchmark of stability — narrowed on the announcement that Athens was asking for the aid, falling to 5.32 percentage points from Thursday's alarming highs of 5.86 percentage points.