Talks over new austerity measures required to keep Greece from defaulting on its debts are close to a conclusion, a European official said Thursday. A report from the negotiations will determine whether Greece gets the next installment of its existing rescue loan as well as a potential second bailout to cover its finances through 2013.
Experts from the European Union, the European Central Bank and the International Monetary Fund have been reviewing Greece's implementation of economic reforms and austerity measures promised in return for euro110 billion in rescue loans for much of the past month.
Greece is lagging behind cutting its massive budget deficit to the targets set out in its bailout program and the experts' long-delayed report will come hand in hand with further measures from the government to get its finances in order. They reportedly include a lower income tax threshold and tax hikes on tobacco, heating fuel and soft drinks.
The program review _ and further commitment from the Greek government _ are central to parallel discussions among other eurozone countries on a potential new aid package for Greece.
More than a year after being bailed out, the country remains stuck in recession and locked out of international debt markets, with investors demanding interest rates of more than 16 percent for Greek 10-year bonds. The high rates are likely to lead to massive funding gaps in 2012 and 2013, when Greece was supposed to raise money again to start paying some of its bills.
European officials have said that no decision on more rescue loans can be made before the review of the bailout program has been concluded. It is also a precondition for releasing the fifth installment of the existing loan program, worth euro12 billion ($17.3 billion), later this month.
The international experts and the Greek government have already begun drafting a statement highlighting the key findings of the review, but some issues related to the country's privatization program still needed to be worked out, the European official said. He was speaking on condition of anonymity because talks were not over yet.
Greece has promised to privatize at least euro50 billion in state holdings in real estate and corporations to help close funding gaps and meet its deficit targets. However, its European creditors have grown frustrated with the slow progress the country has made and some are pushing for international experts to be closely involved with the privatization process _ a step seen by Greece as a violation of its national sovereignty.
Supporting such a move, the head of the European Central Bank said Thursday that European Union officials should be given more power over spending by national governments.
Jean-Claude Trichet said EU officials should be able to veto spending decisions by countries, such as Greece, that have needed financial bailouts once they have failed to reduce their deficits as agreed. He even suggested that a ministry of finance for the currency union as a whole could be set up eventually.
To help Greece in the near-term, European officials have scrambled over how to get private banks involved without resorting to a default on the sovereign debt.
In an interview with Italian business daily Il Sole 24 Ore, ECB executive board member Juergen Stark said the central bank remained against any change to the terms of Greece's debt repayments.
However, he was open to the idea of keeping banks involved in the country by having them agree to roll over their investments in the country's bonds. That strategy, dubbed the Vienna Initiative, was used in 2008-2009 to support Eastern European countries through the global financial crisis.
"The Vienna Initiative includes a voluntary decision by banks to renew their exposure to a country. If this scenario is not viewed as a default or partial default on sovereign debt then it could be a way to involve the private sector in Greece's financing," Stark told the paper.
Pushing through the economic reforms and privatizations has been challenging for Greece's ruling Socialist party, which is facing protests not only from the political opposition but also its citizens.
On Thursday, workers at telecommunications company OTE went on a 24-hour strike over a plan to sell the state's stake in the company. The government wants to sell its entire 16 percent OTE holding, and has invited Germany's Deutsche Telekom to up its stake in the former state monopoly.
Steinhauser reported from Brussels.