The Government has said tonight's decision by euro zone finance ministers to approve a huge financial package to rescue the Greek economy would safeguard the stability of the euro.

The unprecedented deal will see €110bn being loaned to Greece over three years.

Euro zone countries will pay €80bn, with the rest coming from the International Monetary Fund.

The Minister for Finance, Brian Lenihan, tonight welcomed the agreement and said Ireland will contribute up to €1.3bn to the package.

Luxembourg Prime Minister Jean-Claude Juncker, who is also head of the euro zone's group of finance ministers, said the 16 euro zone heads of state and government would meet in the Belgian capital on Friday to sign off on the first transfer of funds.

Greek Finance Minister George Papaconstantinou said Athens would cut €30bn in spending over the next three years as part of the package.

Greek Prime Minister George Papandreou said that the country would have to make big sacrifices for the aid.

‘Today we endorse the agreement’ that was reached on Saturday with the European Union and International Monetary Fund, Mr Papandreou said in a televised address at the start of an extraordinary cabinet meeting.

‘With our decision today our citizens will have to make big sacrifices,’ he said, describing public anger at the new wave of austerity cuts as ‘evident’.

Visibly uneasy making the announcement, he said that the size of Greece's bailout was ‘without precedent’ in the world, but did not reveal how much it was worth.

Mr Papaconstantinou said the agreement foresaw Greece's budget deficit falling to below 3% of gross domestic product (GDP) in 2014. Debt was expected to rise to over 140% of GDP and then fall from 2014.

He said the measures included a rise in VAT to 23% from 21%, a 10% hike in fuel and alcohol taxes and a further reduction in public sector salaries and pensions.

French Finance Minister Christine Lagarde said the rescue loans could run from €100bn to €120bn over three years.

A Greek government source said that the size of the rescue would be revealed at extraordinary meeting of EU finance ministers this afternoon in Brussels.

European Commission president Jose Manuel Barroso said Greece had committed to credible measures to cut its budget gaps.

Mr Barroso said the Commission considerd that the conditions for ‘responding positively to the request by the Greek government are met and recommends that the coordinated European mechanism for assistance to Greece be activated, on the basis of the agreed multi-annual adjustment programme’.

Mr Papandreou said that active and retired public sector workers would bear the brunt of the new wave of budget cuts, which the EU and the IMF had demanded as conditions for releasing the desperately needed loans.

‘The sacrifices are hard but necessary...(and) without which Greece would be in bankruptcy,’ Mr Papandreou said. ‘Avoiding bankruptcy is our nation's red line.’

After months of hesitation, euro zone countries decided to accelerate rescue efforts for Greece out of fear its debt crisis could pull down other members with severely-strained public finances such as Portugal or even Spain.

‘Today the problem has taken on huge dimensions, today the fire risked extending not only to Greece but to the euro zone and beyond,’ Mr Papandreou said.

‘The cost of extinguishing it is very high, and it's very high for Greek citizens,’ he added.

The Greek government, the EU and the IMF wrapped up the tough negotiations yesterday as 15,000 people swarmed through the streets of Athens in May Day protests against the austerity drive.

With €9bn in debts coming due on 19 May, the government had few choices but to turn to the EU and IMF for help to avoid defaulting on part of its mountain of debt reaching nearly €300 billion.

After Greece's credit rating was cut last week to junk status, the interest rates the country has to borrow at shot through to record levels with the 10-year bond yield at one point surging past 11% before falling back.

German Chancellor Angela Merkel said the deep cuts imposed on Greece in return for the bail-out will spur other troubled eurozone members into doing all they can to avoid the same fate.

‘All the experts say that Portugal, Spain and Ireland are in a much better situation than Greece,’ she said in an interview with the Bild am Sonntag newspaper.

‘These countries can also see that the path taken by Greece with the IMF is not an easy one. As a result they will do all they can to avoid this themselves, and they have already set out saving efforts,’ the Chancellor said.