Bank lobby in favor of easing Greek deficit target

AP News
Posted: Nov 14, 2012 7:18 AM

ATHENS, Greece (AP) — Greece needs more lenient targets to reduce its budget deficit so that its economy can return to growth more quickly, the head of an international banking lobby said Wednesday.

Charles Dallara, managing director of the Institute of International Finance, said the 17 eurozone countries should find a better balance between policies that favor debt reduction and those that help growth.

An over-emphasis on budget cuts will cause the risk of a "protracted era" of recession or low-growth, he warned at a banking event in Athens.

Greece is approaching its sixth year of recession as it keeps cutting spending and raising taxes to comply with the demands of its international bailout.

"It's my view that everything must be done to avoid this reality," Dallara said of the deepening recession. "What is needed instead in my view is to ease the case of fiscal adjustment."

Dallara led negotiations with Greece earlier this year to restructure the country's debt held by the private sector, wiping some €100 billion off the national debt.

Despite that writedown, Greece's debt load is still not falling quickly enough.

Its bailout creditors — the 16 other eurozone states and the International Monetary Fund — agreed in principle to give Greece more time to complete its current austerity measures, from 2014 to 2016. But they are still divided over whether to give Greece more time — until 2022 rather than the currently planned 2020 — to bring its debt down to a manageable level of 120 percent of GDP.

To help Greece, Dallara argued that the International Monetary Fund could increase its contribution in the bailout program and provide concessional rates reserved for poorer countries.

He said Greek governments had shown "impressive willingness to bear short-term pain for long-term gain" in passing a major new round of austerity cuts, approved last week and worth €13.5 billion ($17 billion).