Greece gears up for second bailout

By Derek Gatopoulos

Associated Press

Published: Friday, June 10 2011 8:10 a.m. MDT

Greek Finance Minister George Papaconstantinou, presents the new austerity measures during a news conference on Friday, June 10, 2011. Painful new austerity measures are essential to put Greece back on track and reduce its massive deficit, the finance minister said Friday, a day after the new plan of spending cuts and tax hikes was submitted for a vote in Parliament.Greece has been slipping on reform targets of its euro110 billion ($160.75 billion) package of rescue loans from the International Monetary Fund and the European Union, and the new measures are designed to put it back on track.

Petros Giannakouris, Associated Press

ATHENS, Greece — Greece's finance minister said the crisis-hit country hopes to secure a second bailout deal this month, and indicated that European Union countries may back calls to get the private sector involved.

George Papaconstantinou defended a new austerity program through 2015 to be voted on in Parliament this month, saying it was essential to keep Greece solvent.

The measures, unveiled Friday and worth €28 billion ($41 billion), will slap a host of new taxes on austerity-weary Greeks — in spite of previous pledges to avoid more blanket tax hikes — and cut public sector staff by a further 20 percent. Other key details of the plan will be announced in late June.

"We have a choice between a difficult path and a path of destruction," Papaconstantinou said. "We must fix what's wrong or this country has no future."

With yields on its 10-year bonds at near 17 percent, Greece is highly unlikely to return to markets next year — as its original bailout deal had envisioned — and is negotiating an additional rescue deal to avoid potential default so it can meet its debt obligations for the years to 2014.

That assistance would be in addition to the €110 billion in rescue loans the country is already receiving from other members of the eurozone and the International Monetary Fund.

It is to receive the next installment, worth €12 billion, next month — but the IMF requires financing guarantees for the next 12 months to continue its payouts.

"We are all trying to reach a solution in June," Papaconstantinou said.

European countries have been discussing how to resolve the problem with Greece's funding gap, possibly with a second bailout. Eurozone finance ministers meeting in Brussels on June 20 and EU leaders gathering on June 23-24 are to discuss the issue.

One new element in a second bailout could well be the involvement of the private sector. There are suggestions, particularly from Germany, that Greece's private creditors agree to swap their current bonds with those with a longer maturity — the hope being that it will give Greece more time to get a grip on its public finances.

Papaconstantinou said all countries in the EU accept the need of getting the private sector involved somehow and repeated that it will be difficult for Greece to tap bond market investors any time soon.

"So other forms of funding must be found," said Papaconstantinou, who added that the country would be in a surplus in 2012 before interest payments.

Greece has been slipping on reform targets of the bailout, and the new austerity is designed to put it back on track.

Without lawmakers voting to pass the new measures, the country will not be get the vital next installment of the bailout.

Parliament, where the governing Socialists have a six seat majority, is to vote on the package by the end of the month, and on additional implementation laws in early July.

The new austerity measures slash spending and hike taxes between now and the end of 2015 — two years beyond the current government's mandate. They also include a €50 billion privatization drive for the same period. Measures include a one-off luxury tax on swimming pools and yachts and repatriating money taken out of the country.

Without the new austerity drive, Greece's debt — currently projected to reach about 160 percent of GDP this year — would reach nearly 200 percent by 2015, the minister said.

The new measures will have to be passed at a time of widespread public anger.

Frustrated Greeks have taken over the capital's central Syntagma Square, setting up a tent city. Tens of thousands of people thronged the square, which lies in front of Parliament, last Sunday.

Papaconstantinou said some pain was inevitable.

"When you take corrective measures, some people will lose money. There's no doubt about this. But we are trying to do this in the fairest possible way," he said. "When you wade across the river, you get wet, many people get wet. But you can't stop in the middle, or the current will carry you away."

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