European Union 'preparing second bailout for Greece'

 

The European Union is working on a second bailout package for Greece in a race to release vital loans next month and avert the risk of the euro zone country defaulting, EU officials said today.

EU officials said a new €65 billion package could involve a mixture of collateralised loans from the EU and IMF, and additional revenue measures, with unprecedented intrusive external supervision of Greece's privatisation programme. "It would require collateral for new loans and EU technical assistance - EU involvement in the privatisation process," one senior EU official said, speaking on condition of anonymity.

Extra funding for Greece faces fierce political resistance from fiscal conservatives and nationalists in key north European creditor countries - Germany, the Netherlands and Finland - complicating EU governments' task.

Meanwhile, Greece's conservative opposition has demanded lower taxes as a condition for reaching a political consensus with the Socialist government on further austerity measures, which Brussels says is needed to secure any further assistance.

Conservative leader Antonis Samaras called for a flat 15 per cent corporate tax and rejected government plans for hiking taxes to tackle Greece's budget deficit and please fiscal inspectors mulling the next, key tranche of a €110 billion bailout. "You want to raise taxes and reach consensus with us, who have set reducing taxes as a priority? Don't even think about it," Mr Samaras said in remarks addressed to the government.

"Lower tax rates are the key to starting the engine of the Greek economy," he told members of parliament from his New Democracy party. "If you raise taxes, there will be no room for consensus or for renegotiation."

Greek newspaper Kathimerini said finance ministers of the 17-country euro zone may hold a special meeting next Monday on a new package. European Commission spokesman Amadeu Altafaj dismissed the report as "unfounded rumours, once again".

The next scheduled meeting of euro zone finance ministers is on June 20th in Luxembourg, having been pushed back a week from its original date. It will be followed three days later by a summit of EU leaders to assess the 18-month-long debt crisis.

Moves to plug a looming funding gap for 2012 and 2013 were accelerated after the International Monetary Fund said last week it would withhold the next tranche of aid due on June 29th unless the EU guarantees to meet Athens' funding needs for next year.

Prime minister George Papandreou is seeking broad political agreement on measures to tackle Greece's crisis and prevent Athens from defaulting on its debt, an event the European Central Bank said would create mayhem in the banking system.

Officials from the European Union, ECB and International Monetary Fund - known as "the Troika" - are expected to deliver their verdict soon on Greece's faltering drive to bring its budget deficit under control. Their progress report will probably be presented by the end of this week, "possibly a bit later", a spokesman for the German finance ministry said in Berlin.

The biggest EU contributor to the bailouts, which Ireland and Portugal have also taken, is Germany, and public opinion there is hostile to extending yet more loans to any country which fails to get a grip on its finances.

Financial markets are anxious for the report which will determine whether Greece receives the next €12 billion bailout tranche, key to meeting €13.7 billion of imminent funding needs.

Athens has struggled to meet its deficit reduction targets, heightening the risk of a default on its €327 billion debt - equivalent to 150 per cent of economic output.

ECB board member Lorenzo Bini Smaghi issued a dire warning against default and told the Financial Times it was a "fairytale" to think that Greece's debts could be restructured in an orderly way. "If you look at financial markets, every time there is mention of a word like 'restructuring' or 'soft restructuring' they go crazy - which proves that this could not happen in an orderly way, in this environment at least," he said. "If Greece defaulted, the Greek banking system would collapse. It would then need a huge recapitalisation - but where would the money come from?"

Greek public patience is wearing thin. About 400 workers at Hellenic Postbank (TT), which the government wants to privatise, marched to parliament today, chanting "Hands off TT" and "Never, Never, Never!".

The night before, tens of thousands packed a central Athens square to denounce politicians and vent their anger at the IMF and its demands for yet more belt-tightening.

Reuters