Delay by EU-IMF team raises fears of Greek default

 

GREECE HAS denied that it is discussing an “orderly” default on its sovereign debt with the International Monetary Fund and the European Central Bank.

Amid speculation about the country’s dire finances, Greek premier George Papandreou meets German chancellor Angela Merkel in Berlin today to discuss the next phase of its bailout.

A further delay looms, however, after the EU-IMF-ECB “troika” postponed the return to Greece of inspectors to review its new budget plan. This reflects serious concern about the strength of the measures set out in the country’s plan. As a result, euro-zone finance ministers will not be in a position to release an €8 billion bailout loan as scheduled at their regular meeting next Monday.

Greece and the EU authorities have been trying to dampen reports that it may seek to ease its debt burden by imposing a 50 per cent “haircut” on its private creditors. Amid doubt about the viability of the Greek rescue, the possibility of imposing such a loss on investors has emerged as one of three strands in a new attempt to reduce Greece’s national debt.

With a view to preventing the spread of contagion from any default, the others would involve a radical increase in the lending powers of the euro-zone bailout fund and a big recapitalisation of vulnerable European banks.

However, Greek finance minister Evangelos Venizelos dismissed the suggestion that he has been discussing a “controlled” default with IMF managing director Christine Lagarde and ECB chief Jean-Claude Trichet .

A senior euro-zone source said talk of a 50 per cent haircut was “much too premature”.

The Greek government faces a parliamentary vote tonight on a contentious new property tax, which has already triggered resistance within the ranks of Mr Papandreou’s Pasok socialist party.

The tax is a key part of a new budget plan approved last week in a bid to secure the release of the €8 billion loan Greece needs to avert default next month. Greek media have been reporting Mr Papandreou held private talks last week with five or six wavering MPs in a bid to ensure there is no slippage from his four-seat majority in parliament.

The overall plan, agreed last week after two nights of telephone talks with the troika, includes big cuts in some pension payments and the placing of 30,000 of the country’s roughly 800,000 public servants on one year’s notice.

However, the troika is still seeking technical clarifications. The official spokesman for EU economics commissioner Olli Rehn said the inspectors will “soon” go back to Athens.

While insisting there was “no political element” to the delay, he said it was clear the ministers would not be able to release the money when they meet next week in Luxembourg.

“The reason is quite simple. The resumption of the mission in Athens is a first step. Now the mission has got to do its work, of course, as did the previous missions,” the spokesman said.

“The main challenges concern a fiscal gap for 2011 and 2012 and also the putting in place of structural reforms as laid down in the programme and details concerning the implementation of the privatisation programme.”

Mr Rehn has publicly acknowledged moves to expand the fund, but officials say this may happen only after a package of reforms agreed in July have been approved in each of the 17 euro countries.

This is seen to be politically difficult, particularly in wealthy countries like Germany, Finland and the Netherlands, where anti-bailout sentiment is high.

“The challenge is to be able to create a response that’s adequate and yet be able to successfully sell it to the various parliaments that have to sign off,” said Minister for Jobs, Enterprise and Innovation Richard Bruton to reporters on the sidelines of a meeting of EU trade ministers.

More than three quarters of Greeks say the country should stay in the euro zone, but a small majority sees risks that Athens could default on its debt in the next couple of months, a GPO poll for Mega TV showed yesterday.

The poll showed 77.8 per cent of Greeks think the country should stay in the euro zone, versus 15.8 per cent who thought it should not; 54.8 percent said they saw a risk that Greece would default in the next couple of months, while 44.3 per cent said they did not.