EU considers more help for bailed-out Greece

By Pan Pylas

Associated Press

Published: Monday, May 9 2011 12:00 a.m. MDT

LONDON — European authorities have conceded they may need to do more to help Greece with its massive debts more than a year after it was first bailed out, but robustly denied the country wanted to leave the common currency.

Experts from the European Union and the International Monetary Fund are in Greece to check up on economic reforms promised in return for €110 billion ($160 billion) in rescue loans last year. They will also examine whether the current program will be enough to allow Athens to stand on its own feet again when the loans run out in 2013 — a scenario most investors think unlikely.

After a top European official said over the weekend that Greece needs another program, the experts' conclusions may give the green light to another rescue loan or an easing in its current terms.

That view was endorsed by credit rating agency Standard & Poor's, which on Monday cut Greece's bond grade further into junk status. It said it was increasingly likely that Greece would be given more time to repay its bailout loans and that it would negotiate a similar deal on bonds held by commercial investors.

S&P, which downgraded the long-term bonds to B from BB-, said Greece might eventually have to resort to a partial default, reneging on as much as 50 percent of its debt. As a result, the agency said it could downgrade Greece again in coming months.

Though the country has enacted stringent austerity measures, started reforming the economy and announced a €50 billion ($73 billion) privatization program, improvements to public finances are slowing down.

In particular, the government is having trouble raising revenue through tax receipts as the country remains in recession. The upshot is a financial shortfall estimated at some €30 billion ($44 billion) over the coming years.

In recent weeks it has become apparent that it will be difficult for Greece to raise money again on financial markets next year as its borrowing rates remain prohibitively high.

As a result, investors and policymakers say more needs to be done — the trigger to further action will likely be June, when the EU/IMF appraisal is recounted.

"Then we will evaluate those results," Martin Kotthaus, spokesman for German Finance Minister Wolfgang Schaeuble, said when asked about additional help for Greece.

The latest bout of market jitters were stoked Friday when Schaeuble discussed the situation with his Greek, French and Italian counterparts, as well as European Central Bank President Jean-Claude Trichet and the EU's Monetary Affairs Commissioner Olli Rehn at a meeting convened by Luxembourg Prime Minister Jean-Claude Juncker Friday.

"We think that Greece does need a further adjustment program," said Juncker, who also chairs the regular meetings of eurozone finance ministers. Trichet on Monday expressed muted agreement with that position.

Still, an EU official said Monday that more help or easier bailout terms for Greece were far from a done deal. The official was speaking on condition of anonymity because of the sensitivity of the matter.

At the meeting, Greece's Finance Minister George Papaconstantinou was told his government needed to "step up" efforts to deliver on the reforms promised in the bailout, the EU official said.

If Greece wanted to borrow money over ten years right now, it would have to pay a staggeringly high interest rate of more than 15 percent to get investors to part with their cash. For two-year bonds, interest rates are even higher — above 25 percent.

That's unsustainable and compares with the 2 percent to 3 percent rates that Germany would have to pay — an incredible difference between countries that use the same currency and operate under the same monetary policy.

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