Greece agrees deeper austerity to secure extra funds

| June 2, 2011


By Lefteris Papadimas and Ingrid Melander

ATHENS (Reuters) – Greece agreed with its EU and IMF lenders to impose yet deeper austerity and speed up state selloffs in exchange for fresh funds to avert a debt default, a senior official said on Thursday.

Senior euro zone officials agreed in principle during talks in Vienna on a new three-year adjustment program for Greece to run until mid-2014 and involving increased external funding, a source close to the negotiations said.

“There’s an agreement on the program and there will soon be some kind of communication,” the source said, adding the plan would cover an additional fiscal deficit and funding needs for 2011 and 2012, when Greece had originally been due to return to capital markets.

The second program for Greece, which will effectively supersede the 110 billion euro ($160 billion) bailout agreed in May 2010, will involve some participation of private sector investors but this will be limited to avoid triggering a “credit event,” the source said, without providing any figures.

A credit event would trigger market repercussions such as payment of default insurance.

A senior government official said Athens had signed up to 6.4 billion euros in new measures to cut its 2011 budget deficit and aims to wrap up bailout talks with international inspectors by Friday.

Prime Minister George Papandreou will present the main points of the government’s medium-term budget plan when he meets Jean-Claude Juncker, the chairman of euro zone finance ministers, in Luxembourg on Friday, the official said.

The “troika” team from the European Union, IMF and European Central Bank has been in Athens since early May negotiating two main points — whether the government has qualified for a fifth slice of funding under an existing 110 billion euro rescue deal, and the sustainability of Greece’s 340 billion euro debt.

“Negotiations with the troika are likely to conclude late on Thursday or Friday. We are at a stage where the troika is asking for details on various issues,” said the official, who requested anonymity.

At stake is the fifth, 12 billion euro tranche of the loan, needed to pay immediate funding needs, as well as a report on Greek debt sustainability crucial for new funding.

“The prime minister will present the main points of the mid-term plan to Juncker, which include speedier privatizations and new measures to cut government spending and raise revenues,” the official said.

NO EMERGENCY EUROGROUP

The source close to the negotiations said there were no plans at this state for an emergency meeting of euro zone finance ministers before the next scheduled session on June 20. Instead, officials would continue to work on the outstanding details, including apportioning extra official finance.

The question of whether some of the loans would be collateralized was still under discussion, he said. The source also said Greek privatization, which aims to raise 50 billion euros by 2015, was on the agenda.

There would be very strong reporting requirements for the types of assets and the timing of asset disposals, and strict rules on the composition of boards and the way managers are hired and fired, he said.

“Governance of the new national wealth fund will be very strong, but will remain within the boundaries of Greek law,” he said, making clear there would be no formal international supervisory role as demanded by some EU politicians.

The Greek official said the medium-term budget plan included tax increases and lower income tax exemptions that he hoped would secure the latest tranche of aid in time. “The discussion on additional measures of 6.4 billion euros for 2011 has been concluded, the resources have been found,” he said.

But the government may still have some hurdles to jump at home. A group of 16 backbench members of parliament for the ruling Socialists signed a letter to Prime Minister Papandreou seeking a full party debate on the package before it goes to parliament, possibly as early as next week.

Papandreou’s Socialist party (PASOK) has 156 seats in the 300-member parliament and with only a few exceptions, lawmakers have so far solidly backed painful measures imposed under last May’s EU/IMF bailout deal, which cut civil servants’ wages by about a fifth last year.

But ruling party MPs have become increasingly critical of the government, after a failure to meet budget targets under the bailout deal led to ever more belt-tightening.

“It is not just a matter of political responsibility, logic demands that we take stock. It is a matter of patriotism and democracy,” the MPs said in the letter obtained by Reuters.

Lawmaker Tonia Antoniou, who signed the letter, said this did not mean the MPs would vote against the medium-term plan but the signatories wanted a proper debate. “We must discuss all these decisions very seriously,” she told Reuters.

Opinion polls published last week show PASOK losing its lead over the opposition conservatives, who want tax cuts and a renegotiation of the bailout terms.

Greece’s main public sector union, ADEDY, said it will join its private sector sister union GSEE in a nationwide strike on June 15, while thousands have gathered in central squares every night since May 25 to protest against austerity.

Wider political consensus was set as a precondition by EU officials for any further help but Papandreou has so far failed to persuade the opposition to back the medium-term plan.

(Additional reporting by Paul Taylor in Paris, Harry Papachristou and George Georgiopoulos in Athens; Writing by Dina Kyriakidou, editing by David Stamp and Ruth Pitchford)



Category: Business News

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