Greece recommended for next batch of bailout

By Gabriele Steinhauser

Associated Press

Published: Friday, June 3 2011 11:24 a.m. MDT

ATHENS, Greece — Greece is poised to receive the next installment of its bailout facility, debt inspectors said Friday after a near month-long inspection of the country's public finances.

It also looks Greece's partners in the eurozone could be stumping up additional new money beyond the current €110 billion package to help the debt-ridden country meet its massive debt obligations.

"I expect the eurogroup to agree on additional financing to be provided to Greece, under of course strict conditionality," Jean-Claude Juncker, the head of the 17 eurozone finance ministers, said in Luxembourg following a meeting with Greek Prime Minister George Papandreou.

Juncker also hinted that the private sector will be asked to help out.

"This conditionality will include private sector involvement on a voluntary basis and this private sector involvement will have to be negotiated with private creditors," Juncker said without elaborating.

Eurozone states have been discussing whether to ask private creditors to give Greece more time to repay its bonds or buy new bonds as old ones expire.

Juncker was speaking after the European Union, European Central Bank and the International Monetary Fund, collectively known as the troika, gave Greece more breathing room as it tries to service its debts.

Without the €12 billion due from the bailout facility due this summer, which is dependent on the country getting through these regular assessments, Greece was facing default.

"Overall, significant progress, in particular in the area of fiscal consolidation, has been achieved during the first year of the adjustment program," the three institutions said.

The next installment of the loans it first began receiving in May last year is expected to be made available in early July, the troika said. It later slightly amended the wording to underline the funds would be most likely available in early July following approval from the IMF's board and the eurogroup.

The three also said they expected the Greek economy to stabilize at the turn of the year. That's important because the debt burden as a proportion of the country's debt continues to rise if the economy is shrinking as it has been for much of the last three years.

Juncker said there would be "no Greek exit from the euro area" and that Greece will not default on its debts — both scenarios have been widely rumored to be possibilities, and both strenuously denied by the Greek government and European officials.

The prevailing view in the markets has been that Greece, which is effectively locked out of raising money through the sale of its bonds because of prohibitively high interest rates, would need another bailout to plug a potential funding gap of between €60-70 billion over the next two years.

The protracted negotiations with the debt inspectors in Athens dealt with both the steps Greece has been taking to reform its economy in line with last year's package of loans, and a program of additional measures for the years 2012-2015.

A privatization program that seeks to raise funds for the cash-strapped country, further measures to be taken this year to meet deficit reduction targets and structural reforms to the Greek economy were all discussed, the Finance Ministry said, adding they had concluded "positively."

In return for the new money Greece had to accept significant outside interference in the way it runs government services. S0-called "monitoring mechanisms" will be put into place in Greece to ensure the country implements structural reforms already under way, including to healthcare and the labor market.

The Greek government is seeking to narrow its deficit to 7.5 percent of gross domestic product by the end of this year, from 10.5 percent in 2010. To achieve that, Finance Minister George Papaconstantinou last month announced remedial austerity measures worth about €6.4 billion for this year.

The texts detailing the measures are to be finalized "in the coming days" and will be submitted to Parliament after being approved by the Cabinet, the ministry said.

In its statement, the troika said the mid-term program would include reducing tax exemptions, hiking property taxes and increasing a crackdown on tax evasion. It will also include a "significant downsizing of public sector employment, (and) restructuring or closure of public entities."

The government has also committed to "significantly accelerate" its privatization program, which is expected to raise €50 billion by the end of 2015.

For this, it will create an "independently managed privatization agency," which will meet quarterly and be subject to annual targets, the troika said.

Steinhauser contributed from Luxembourg.

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