Brussels, 06/06/2011 (Agence Europe) - Greece's international creditors are due to approve a second financial bailout plan for the country in return for new austerity measures. The aid would be financed in part by the private sector, which has been asked to maintain its exposure to Greek debt. Negotiations will continue until the Tuesday 14 June Eurogroup meeting, which will be expected to finalise details of private sector involvement to prevent restructuring of the country's national debt, an idea ruled out by Europe. Greeks, meanwhile, have been protesting against any further austerity measures.
Suffering from a deeper recession than forecast and mistrust from the money markets, which have been demanding prohibitive interest rates to roll over its sovereign debt, Greece will not be in a position to roll over its debt unaided next year, as expected in its current economic adjustment programme.
The chair of the Eurogroup, Jean-Claude Juncker, said on Friday 3 June after a meeting with the Greek prime minister, George Papandreou, that he expected the Eurogroup to agree to further financing of Greece under strict conditions. The actual size of the new bailout is not clear. A member of the ECB Governing Council, Lorenzo Bini Smaghi, has suggested between €60 billion and €70 billion for 2012-2013. The Greek media talk about €85 billion by 2014. The EU and the IMF would each provide between a third and a half of the loans. The Greek government would have to come up with some of the funds itself (drummed up by selling off the state silver in the form of a privatisation programme, expected to net some €50bn by 2015). The remainder would be provided by the private sector.
The idea of 'voluntary' involvement by banks in the new aid programme seems to have been agreed, but the exact details of how this would work have yet to be worked out. One option favoured by the ECB (and the most likely option) is to encourage owners of Greek bonds to buy up further bonds for the same maturity and for the same rates as the bonds they already own when they mature (rolling over debt). Some €65bn of Greek bonds will mature by 2013. Germany is said to be calling for a voluntary exchange of old bonds for new, longer-lasting bonds, but ratings agency Standard & Poor's has warned that this idea might cause a critical mass of creditors to refinance their exposure to Greek debt at lower than market rates, amounting to a default .
In Luxembourg, Spandrels presented Juncker with the additional austerity measures the government hopes to introduce to reduce the public deficit from 10.5% of GDP to 7.5% this year, and then to reduce it to 1% in 2015. The measures still need to be formally passed by the Greek government (once endorsed by the international creditors). They include new cuts in public spending, shrinking the public sector, closing public bodies, increasing taxation, reducing tax exemptions, increasing property tax and stamping out tax evasion, speeding up structural reforms, removing administrative obstacles to exports, encouraging tourism, reforming the healthcare system, introducing labour market flexibility, greater privatisation of transport and energy and speeding up the privatisation programme.
EU Economic and Monetary Affairs Commissioner Olli Rehn said that the European Commission and the member states were prepared to study ways of providing technical assistance for taxation and privatisation, if requested by the Greek government. He said this would not amount to supervision but would be like know-how provided by EU experts for the creation of the Greek statistic institute.
The austerity measures were thrashed out in tough negotiations between the Greek government and the international creditors (the European Commission, ECB and IMF), which have now ended their fact-finding mission in Greece. Talks will now continue on details of the new funding package over the next few weeks, explained the creditors in a joint press release. They say that once negotiated and approved by the IMF and Eurogroup, a new tranche of aid worth €12 billion will be made available, probably early in July. (M.B./transl.fl)