EU’s Juncker: mission to mull new Greek austerity

By Michael Winfrey and George Georgiopoulos

ATHENS (BestGrowthStock) – Greece could face pressure to introduce tougher austerity measures when European and IMF officials discuss an aid package this week, a senior EU figure said, though a delay in the talks hit Greek assets on Monday.

The euro zone member hopes to begin talks with the mission on Wednesday on a three-year policy program that investors are increasingly convinced will lead the debt-ridden country to tap an aid package ranking as the biggest bailout ever attempted.

Originally scheduled for Monday, the meetings were delayed by a volcanic ash cloud that has wreaked havoc with transport across Europe, adding to uncertainty that prompted investors to push up Greek bond yields and dump bank shares.

Greece has already cut public sector wages, frozen pensions, and raised taxes to try to cut its budget deficit by around a third to 8.7 percent of GDP this year.

Eurogroup Chairman Jean-Claude Juncker told Greek financial website Euro2day the measures for 2010 were “pretty ambitious and look credible.”

“During our talks with the troika (European Central Bank/European Commission/International Monetary Fund) on the Greek package, the possibility of new measures will be discussed,” he was quoted as saying.

In the interview published in Greek and translated back into English, he said it was not an immediate issue, but one for the whole process.

The Mediterranean country of 11 million has yet to ask for activation of the EU/IMF aid safety net, estimated at 45 billion euros ($62.91 billion) in the first year.


The Greek Finance Ministry refused to comment, but the head of the employers’ association predicted more harsh cuts, a fear echoed in Greek papers that expect tens of thousands of state contractors to lose their jobs and moves that will hit private sector paychecks to raise Greece’s competitiveness.

“The IMF will certainly demand new measures for 2010, effectively proving that the current stability plan is not sufficient,” Vassilis Korkidis, president of Greek Confederation of Trade, told Greek radio. “The strategy of domestic deflation will plunge us further into recession.”

Some IMF officials had already arrived in Athens on Monday, but Greek officials are expected to wait for members of the other institutions to show up before starting talks.

In Brussels, a spokesman for the European Commission said the officials could potentially hold a video conference. The IMF has said the mission should last 15 days and any agreement would be finalized shortly afterward by its board.

“These talks are very important because they will make it possible for us to move very fast if the Greek government decides on the activation of the mechanism,” Greek Finance Minister George Papaconstantinou said on Monday.

Juncker said the program would be on common terms, rather than having some IMF benchmarks and others for the European bodies.

“In no way will there be different terms from the euro zone and other ones from the IMF,” he said.

The premium investors demand to buy Greek government bonds rather than German benchmarks rose to a euro era record of 482 basis points on Monday, up about 40 basis points from Friday’s close and far over the 2008 pre-crisis levels of about 50 or 60 basis points. The cost of protecting Greek government debt against default rose to a record high, according to monitor CMA DataVision.

Greece says it must raise roughly 12 billion euros by the end of May to refinance debt, make bond interest payments, and finance its deficit, with the next test a sale of 1.5 billion euros in short-term debt on Tuesday.

Juncker said one major problem was that it appeared markets did not trust the euro zone to step in and help Greece if it were to request financial aid. He said this was not true.

“What I must say is that the euro zone will assume its responsibilities. We have said it many times, there is European money when it becomes necessary,” he was quoted as saying.

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(Additional reporting by Harry Papachristou and Renee Maltezou; editing by Stephen Nisbet)

EU’s Juncker: mission to mull new Greek austerity