Greece recommended for next batch of bailout

AP News
Posted: Jun 03, 2011 2:24 PM
Greece recommended for next batch of bailout

Greece is poised to receive the next installment of its bailout facility, and will likely get further rescue loans to prevent it from defaulting on its massive debts, European officials said Friday.

Debt inspectors from the European Union and the International Monetary Fund said Greece should receive the next euro12 billion tranche of its existing euro110 billion bailout as long as additional austerity and privatization measures are deemed sufficient. Greece also had to accept unprecedented outside interference in the way it runs its government services.

As the international debt inspectors concluded the near month-long mission in Athens, Jean-Claude Juncker, who chairs the group of 17 eurozone finance ministers, said he expected Greece to get additional help, on top of the existing rescue loans, as long as it fulfills its promises.

"I expect the eurogroup to agree on additional financing to be provided to Greece, under of course strict conditionality," Jean-Claude Juncker, the head of the 17 eurozone finance ministers, said in Luxembourg following a meeting with Greek Prime Minister George Papandreou.

Crucially, Juncker also announced that private creditors such as banks and investment funds will be asked to share some of the burden of giving Greece more time to get its economy back in track _ an idea that has faced much criticism from the European Central Bank, which fears that it could cause panic on financial markets.

"This conditionality will include private sector involvement on a voluntary basis and this private sector involvement will have to be negotiated with private creditors," Juncker said. He later told the Associated Press that eurozone countries had not yet decided what this involvement will look like in practice.

In recent weeks, representatives of eurozone finance ministries have been discussing several options of getting private creditors involved, including asking them to give Greece more time to repay the bonds they hold or commit to buying new bonds as old ones expire. However, they have ruled out forcing private investors to accept being paid less than they are owed.

Juncker was speaking after the European Union, European Central Bank and the IMF, collectively known as the troika, gave Greece more breathing room as it tries to service its debts.

The euro12 billion tranche, which the troika said will likely be paid out in early July following approval from the IMF's board and the eurogroup, depended on the recent debt assessment. Without the funds, Greece faced default.

"Overall, significant progress, in particular in the area of fiscal consolidation, has been achieved during the first year of the adjustment program," the three institutions said.

They also said they expected the Greek economy to stabilize at the turn of the year. That's important because the debt burden as a proportion of the country's GDP continues to rise if the economy is shrinking as it has been for much of the last three years.

The prevailing view in the markets has been that Greece, which is effectively locked out of raising money through selling bonds because of prohibitively high interest rates, would need another bailout to plug a potential funding gap of between euro60-70 billion over the next two years.

The protracted negotiations with the debt inspectors in Athens dealt with both the steps Greece has been taking to reform its economy in line with the bailout, and a program of additional measures for the years 2012-2015.

Speeding up a euro50 billion privatization program that seeks to raise funds for the cash-strapped country, further measures to be taken this year to meet deficit reduction targets and structural reforms to the Greek economy were also discussed, the Finance Ministry said, adding the talks had concluded "positively."

In return for continued funding, so-called "monitoring mechanisms" will ensure Greece implements structural reforms already under way, including to healthcare and the labor market. A new "independently managed privatization agency" will also be set up for the sale of state assets. The privatization program will meet quarterly and be subject to annual targets, the troika said.

Greece is seeking to narrow its deficit to 7.5 percent of GDP by the end of this year, from 10.5 percent in 2010. To achieve that, Finance Minister George Papaconstantinou last month announced remedial austerity measures worth about euro6.4 billion for 2011.

The fresh tax rises and spending cuts are to be finalized "in the coming days" and will be submitted to Parliament after approval by the Cabinet, the ministry said. The troika said they will include a "significant downsizing of public sector employment, (and) restructuring or closure of public entities."

Austerity measures already taken _ and the prospect of more to come _ have sparked frequent protests and strikes, with several calling for yet another nationwide general strike. Thousands of people congregated in the capital's main Syntagma Square for the 10th night after a call for peaceful rallies went out on social networking sites.

Opposition parties angrily denounced the emerging new agreement as a recipe for greater hardship for Greeks.

"This is giving a higher dose of the wrong medicine," conservative party spokesman Yiannis Michelakis said.

Several thousand protesters from a communist-backed union marched through the center of Athens, while about 200 from the same union took over the Finance Ministry building earlier in the day. They hung a massive, five-storey banner from the building and blockaded the ministry's entrance before dawn.


Steinhauser reported from Luxembourg.