Greek government drops plan to seek softer bailout terms

Fri, Jul 6, 2012, 01:00

GREECE’S NEW government has dropped a plan to seek softer terms for its second bailout following warnings that it would be rejected by international lenders.

Greek finance minister Yannis Stournaras said the governing coalition would have to accelerate reforms before asking for modifications in a €174 billion programme agreed in February with the European Union and the International Monetary Fund.

“The programme is off-track and we can’t ask for anything from our creditors before we get it back on course,” Mr Stournaras told the Financial Times. “There is light at the end of the tunnel but it is a long tunnel.”

Greece’s change of tack came as EU and IMF officials visiting Athens this week echoed a statement by IMF managing director Christine Lagarde in a television interview that she was “not in a negotiations or renegotiations mood” on the Greek bailout.

The coalition partners – the conservatives and two left-of-centre parties – all pledged during recent election campaigns that Greece would seek an extension of the programme to ease the impact of almost five years of recession, with unemployment now above 21 per cent.

Yet centre-right Greek prime minister Antonis Samaras avoided any mention yesterday of a timetable change during his first meeting since taking office with officials from the so-called troika – the EU, IMF and European Central Bank – people with knowledge of the discussions said.

“[Mr Samaras] stressed his commitment to accelerating structural reforms, especially privatisation, in order to turn the economy around and start creating jobs,” one person said.

“It went well; there was a good atmosphere,” another aide said.

An IMF official said: “We don’t have any comment on the talks at this point.”

Greek officials had been worried about the meeting given previous stormy sessions between Mr Samaras and the troika over the conservative leader’s opposition to the first Greek bailout in 2010 and his initial reluctance earlier this year to provide a letter backing the second programme.

The troika made clear that even though economic arguments could perhaps be made for extending the programme, Greece would then need extra bailout funding, which euro zone members could refuse to provide given the country’s lack of progress to date.

Greece has missed deadlines for key structural reforms – including an overhaul of the tax administration aimed at reducing high levels of tax evasion, estimated at about 5 per cent of national output – because of two general elections in the past two months. This year’s budget is already off-track despite improvements in controlling spending, as revenue shrank amid a collection slowdown during the election campaign and a deeper than forecast recession.

“The improvements are welcome but the overall picture is misleading,” said a finance ministry official, pointing out high levels of arrears owed to suppliers and a 25 per cent cut in the public investment budget in the first quarter.

After this week’s fact-finding mission by the EU and IMF, Greece will hold detailed negotiations at the end of this month to update the bailout programme.

Athens will come under pressure to reach a deal by early August or risk further delays in disbursement of a €4.2 billion loan tranche due last month, which was held back until a viable government was formed. – (Copyright The Financial Times Limited 2012)