European countries must decide how to plug potential funding gaps for Greece next year before the International Monetary Fund can release the next batch of loans, an envoy from the Fund said Tuesday, as the struggling country's prime minister convened party deputies to discuss further austerity measures.
Senior representative Bob Traa said EU leaders had "hard nuts to crack" at an EU summit in late June — agreeing on additional rescue support if needed — before the IMF would release its part of a 12 billion euro ($17.60 billion) July installment, which is due as part of last year's 110 billion euro ($161.30 billion) bailout package.
The initial rescue loan agreement had predicted Greece would be able to borrow in the markets for part of its funding needs next year, but high interest rates mean that is highly unlikely. As a result, it's expected that Greece will need extra help beyond the current package of rescue loans.
"What needs to be decided is how to fill in the various parts of the financing side ... I believe there is a summit in Europe by the heads of state on June 20, where some hard nuts need to be cracked and they need to make some decisions," Traa said during a banking conference in Athens. "And then we will actually be ready to go to our board and disburse in early July, but we know that time is of the essence."
Last week, debt monitors from the EU and IMF said Greece should receive the 12 billion euro installment in early July — as long as additional austerity and privatization measures are deemed sufficient. A final decision is to be taken by the IMF board and the eurogroup in meetings later this month.
The government has been struggling to meet the terms of the EU and IMF bailout package despite an austerity package adopted last year. It has found itself forced to announce new cutbacks and tax hikes, including 6.4 billion euros worth of remedial austerity measures for this year, and a midterm program to run from 2012-2015, two years beyond the current government's mandate. It is also pushing through a 50 billion euro privatization program.
Prime Minister George Papandreou was meeting with his Socialist party's economic affairs deputies to discuss the issue, a day after holding a near 10-hour informal Cabinet meeting, as he seeks to quell internal party discontent. The new austerity plans are to be discussed by the Cabinet again on Wednesday before the ministers submit the plans to Parliament for a vote.
Papandreou suggested late Monday he could hold a referendum on the measures, which have been immensely unpopular even with deputies of his own party. The government also appears rattled by continued anti-austerity rallies in Greek cities, which climaxed with tens of thousands of protesters thronging the main square outside Parliament in central Athens on Sunday.
Traa, the IMF envoy, urged the government to quickly make up for a slowdown in structural reforms in 2011, but also criticized contradicting statements being made from European leaders and talk of a mild restructuring of Greece's massive national debt.
"There is no such thing as being a little bit pregnant," he said.
The government and several European officials have insisted a restructuring of debt — which could involve paying back less than the full amount Greece owes, or at a later date — is not on the cards, but the rumors have persisted.
"If you want to do a debt restructuring that will really make a difference, it needs to be very large," he said. "And if you need a very large debt restructuring that creates untold problems not just for Greece but also for the euro area."
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