EU reassures Greece on loan extension

By Elena Becatoros

Associated Press

Published: Thursday, Dec. 9 2010 7:25 a.m. MST

Firefighters are reflected in the helmet of a colleague as they gather outside Finance Ministry in Athens, Thursday, Dec. 9, 2010. Unions have staged a series of strikes and demonstrations, with about 100 uniformed firefighters marching to Ministry. Greece's seventh nationwide general strike this year has been called for Dec. 15. The European Union will likely decide early next year on extending Greece's repayment period for the bailout loans that saved it from default, top EU economic official Olli Rehn said Thursday.

Thanassis Stavrakis, Associated Press

ATHENS, Greece — Debt-strapped Greece will likely get more time before it has to repay the bailout loans that saved it from defaulting on its bonds, a top EU official indicated Thursday as the union seeks to keep its government debt crisis from mushrooming.

A decision on delaying Greece's first repayments will likely be taken next year, EU monetary affairs commissioner Olli Rehn said during a visit to Athens.

Greece has to start repaying bailout loans of up to €110 billion ($145 billion) from the EU and International Monetary Fund in 2013, when the current rescue package ends. EU governments are considering pushing back that date by 4 1/2 years to put it in line with the deadlines of the bailout given to Ireland.

The move comes as EU officials make efforts to ease the pressure in debt markets that forced Ireland's rescue last week and threatened to engulf Portugal as well as larger economies like Spain and Italy. While the EU has resisted further big moves, such as boosting its bailout fund or creating European bonds to share the debt burden, it has focused on austerity plans and making bailout repayment terms more flexible.

Fears of default push bond yields for trouble countries so high they face being unable to borrow at affordable rates and roll over expiring debt.

Fitch Ratings on Thursday said that while the eurozone's credit strength was better than markets were indicating, the "dramatic deterioration" in borrowing conditions may mean leaders will have do more such as increase the size of their current bailout fund from €750 billion or have the European Central Bank step up its purchases of government bonds.

But Fitch said it doesn't expect the crisis to lead to the breakup of the euro.

In Greece's case, the extension addresses fears that its economy will not be growing sufficiently by 2013 to generate enough revenue to pay back its debts if it had to pay back the full IMF/eurozone loan in 2014 and 2015.

Rehn said the European Commission was discussing the repayment extension "following the decision to do so by the EU finance ministers."

"We stand ready to make the concrete proposal early next year, and I'm certain that it will receive the support of EU finance ministers," the commissioner told reporters after meeting with Greek Finance Minister George Papaconstantinou.

Speaking at a conference outside Athens earlier in the day, Rehn said that the extension "will mean that we will be able to go beyond and stabilize (Greece's) debt dynamics and overcome the hump in debt repayment, especially in 2014 and 2015."

Rehn expressed "sincere admiration" at the progress of Greek financial reforms, which have included overhauling the pension system, cutting civil service salaries, trimming pensions and increasing consumer taxes.

Greece must lower its budget deficit from the 15.4 percent of gross domestic product it stood at in 2009, to below the eurozone limit of 3 percent of GDP by 2014. Its finances are under strict supervision by the IMF and EU, and the quarterly disbursement of bailout loans depends on Athens meeting financial targets.

The austerity measures have led to a backlash from labor unions, who say they are causing ever increasing hardship.

The country's statistics agency said Thursday that unemployment in September rose to 12.6 percent from 12.2 percent the previous month. The figure in Sept. 2009 stood at 9.1 percent.

Unions have staged a series of strikes and demonstrations, with hundreds of uniformed firefighters marching to the Finance Ministry on Thursday. Greece's seventh nationwide general strike this year has been called for Dec. 15.

On Tuesday, IMF managing director Dominique Strauss-Kahn said on a visit to Athens that he supported the extension without imposing additional demands for economic austerity.

The European Union is seeking to toughen fiscal rules for countries using the euro to prevent a repeat of the crises seen in Greece and Ireland and contain the debt market turmoil which some fear could drag in other countries with shaky finances, such as Spain and Portugal.

Rehn said a comprehensive response was needed by the EU.

"It is increasingly a systemic crisis, and therefore we need a systemic answer," he said in response to questions by Greek deputies during an appearance in Parliament.

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