EU Finance Chiefs Tell Greece to Brace for IMF Bailout Terms
By Ben Sills and Mark Deen
April 16 (Bloomberg) -- European Union finance ministers told Greece to brace itself for the International Monetary Fund’s conditions for granting a bailout package for the debt- strapped nation.
Greek Prime Minister George Papandreou yesterday asked for a meeting with the EU, the IMF and the European Central Bank, which agreed to back a 45 billion-euro loan package for Greece this week. Talks will begin in Athens on April 19.
“It’s a matter of preparing a joint program of conditionality and financing if needed and if required,” EU Economic Affairs Commissioner Olli Rehn said today in Madrid after attending a meeting of euro-area finance ministers.
The IMF may demand Greece cut pension payments and spending on civil servants as a condition of the loan, according to Giada Giani, an economist at Citigroup Inc. in London. The measures may spark unrest in Athens where union members occupied the Finance Ministry last month in protest over spending cuts already adopted by the government.
The Athens meeting “is an important step as it links the availability of external financing to Greece implementing a set of structural reforms,” Gianni said yesterday in a research note. “These probably will go well beyond the tightening measures that Greece has put in place up to now, which may help to reduce the deficit for 2010 but do little to tackle Greece’s long-term solvency issues.”
Bonds Decline
Greek 10-year yields increased to 7.255 percent today, approaching the rate before the 45 billion-euro ($61 billion) rescue package for the cash-strapped nation was unveiled on April 11.
Papandreou has implemented tax increases, trimmed spending and cut wages to try to lower the budget shortfall from 12.9 percent of gross domestic product last year, the largest in the euro’s history, to 8.7 percent this year. Those moves contributed to the EU agreeing to come to the country’s rescue if its financing costs didn’t fall.
“We agree Greece should now also undertake the required preparations with the International Monetary Fund,” German Finance Minister Wolfgang Schaeuble said on SWR2 radio today, according to an e-mailed transcript. While Greek restructuring plan “isn’t really on track, you will always have new speculation in the financial markets,” said Schaeuble, who didn’t attend the Madrid meeting in order to extend a hospital stay after surgery.
Borrowing Costs
The euro region is aiming to prevent the first default of a member nation that would risk sending shockwaves through the rest of the currency area. Greece needs to raise 11.6 billion euros by the end of May, and the prime minister has said borrowing at current market interest rates is “unsustainable.”
Portuguese bonds fell to the lowest in almost two months today. The yield on Portugal’s 10-year debt rose 5 basis points to 4.45 percent at 2:58 p.m. Madrid time. A basis point is one hundredth of a percentage point.
Greece will begin a presentation to U.S. investors about a possible debt sale on April 20, Market News reported, citing comments by Petros Christodoulou, managing director of the Greek Public Debt Management Agency, to Japanese news service Jiji News.
ECB executive board member Juergen Stark said yesterday that the Greek meltdown may signal a new phase of the crisis, which began in August 2007 with seizures in the global credit markets and has seen borrowing rocket as governments were forced to bail out some of the world’s biggest lenders.
‘Dramatic Deterioration’
“I am particularly concerned about the dramatic deterioration in public finances, which will require very ambitious fiscal consolidation efforts in the years to come,” Stark said in a speech in Washington.
The premium of Greek debt over comparable German bonds has more than doubled since Dec. 1 on concern that Greece would struggle to trim the deficit and fund its rising debt. The prospect of a euro-area country defaulting or needing a bailout contributed to the euro declining more than 5 percent this year and raised the borrowing costs for other EU nations with high deficits.
Portugal, Italy, Spain and Ireland are also “facing a painful period of fiscal consolidation which, combined with a fundamental lack of competitiveness, spells serious trouble for their economies,” said Jonathan Loynes, Chief European Economist at Capital Economics Ltd. in London. Their problems are “broadly comparable” with Greece’s.
3-Year Plan
The 45 billion euros pledged by the EU and IMF would cover the first year of a three-year aid package. The talks in Athens would likely focus on conditions the EU and IMF would impose on funds Greece would need after the first year.
Greece has pledged unspecified budget cuts of about 6 percentage points of GDP over the following two years to bring the shortfall back within the EU’s 3 percent limit in 2012.
Papandreou has said he will seek to raise the retirement age and the government is preparing other changes to trim spending in the country’s pension system, considered one of the EU’s most generous. Greece’s biggest union warned today that it will call more strikes if the government proceeds with the pension overhaul.
No comments:
Post a Comment