ECB official: New Greek aid under study

AP News
Posted: May 30, 2011 10:55 AM
ECB official: New Greek aid under study

Greece could get another euro20 billion ($28 billion) in aid from its fellow euro countries and raise three times that through new austerity measures such as selling government property, a top European Central Bank official says.

Lorenzo Bini Smaghi, a member of the ECB's executive board, is quoted by the Financial Times as saying Greece needs between euro60 billion and euro70 billion through next year.

That gap could be filled in several ways, Bini Smaghi said, giving a rough sketch of a plan for additional assistance that was split between government and private-sector contributions.

The private sector money would come partly from selling government property as well as rolled-over investments from Greek banks and issuance of short-term government debt.

The government half would be split, two-thirds from the euro area countries, or about euro20 billion, and the rest from the International Monetary Fund.

He said the plan "has to be studied further" and would in any case require concrete commitments from the Greek government to keep working to fix its finances. Greek political parties, however, failed last week to agree to a new plan of austerity measures.

Bini Smaghi again rejected any reduction of the debt through restructuring _ that is, Greece delaying repayment or paying less than the full amount owed. He said that would mean a "major, economic, social and even humanitarian disaster." He did say Greek banks might renew some of ther holdings, presumably voluntarily.

Earlier in the financial crisis, European officials successfully pressed banks to voluntarily maintain their exposures to troubled countries in Eastern Europe.

Greece already got a rescue package last year worth euro110 billion from the eurozone and the IMF. But its economy continues to deteriorate and the government says it won't be able to tap financial markets as planned next year.

EU officials are under pressure to secure Greece's financing for at least a year ahead, with Luxembourg's Prime Minister Jean-Claude Juncker saying last week that otherwise the IMF's rules would not permit it to pay out the next installment of its loans to Greece in June.

Bini Smaghi said "if the Greek government agrees to the programme, the IMF will disburse and I am convinced that the euro area countries will disburse their part."

On Monday, the bank said that for the ninth straight week it left dormant its program to buy bonds of struggling countries. The bank has halted the purchases, which helped hold down interest rate yields on the countries' bonds, after trying without success to get the European Union's bailout fund to take them over.