Greece close to bailout deal
Greece has agreed to €6.4 billion in new measures to cut its 2011 budget deficit and aims to wrap up bailout talks with international inspectors by tomorrow, a senior government official confirmed today.
Prime minister George Papandreou will present the main points of the government's medium-term budget plan when he meets Jean-Claude Juncker, the chairman of euro zone finance ministers, in Luxembourg, the official said.
The "troika" team from the European Union, IMF and European Central Bank, has been in Athens since early May negotiating two main points - whether the government has qualified for a fifth slice of funding under an existing €110 billion rescue deal, and the sustainability of Greece's €340 billion debt.
The medium-term budget plan included tax increases and lower income tax exemptions, the official said, expressing optimism that Greece would now receive the latest tranche of aid in time.
"The discussion on additional measures of €6.4 billion for 2011 has been concluded, the resources have been found," he said. "The measures include lowering the income tax exemption, terminating other exemptions and possibly taxes on soft drinks and natural gas."
Government spokesman George Petalotis said talks on the medium-term plan had been largely completed but technical details remained and confirmed that Mr Papandreou would present it to Mr Juncker tomorrow.
Mr Juncker chairs the Eurogroup which must decide whether to release the €12 billion tranche this month to cover immediate funding needs of €13.7 billion - an issue which hangs on whether Athens has met budget deficit cutting targets.
Athens needs the money not only to cover day-to-day bills but also repay maturing debt and avoid a default which could provoke a new crisis at European banks which hold Greek bonds.
Greece's original bailout, agreed a year ago, assumes that the government can resume borrowing on financial markets in 2012.
But credit ratings agency Moody's Investors Service knocked a final nail into the coffin of that idea late yesterday, slashing Greece's credit rating by three notches to the same level as Cuba.
Moody's now rates Greece at the same level where Argentina was in July 2001, a few months before Buenos Aires said it would default on its debt. Based on historical experience, borrowers on the Caa1 rating have a 50 per cent chance of default.
With no prospect of returning to the markets next year, Athens will need a second bailout to help cover the funding shortfall in 2012 and beyond.
But one source close to the talks said the troika text, concluding the inspection visit, would not cover this. "Anything that could follow concerning a possible additional programme is for the days to come," the source said. "These questions are more political and will be dealt with at the level of finance ministers and advisers."
Elsewhere, German chancellor Angela Merkel said high levels of debt in some euro zone countries were responsible for the uncertainty that has weighed on the currency. "We don't have a euro problem," Ms Merkel said today in Singapore. "Rather we have a debt problem that has to be overcome."
Ms Merkel also reiterated German demands for closer cooperation of European economic policies. "We want to further deepen the coordination of the key areas of economic policies," she said.
She added countries with high debts needed to resolve their structural problems. Ms Merkel said every EU country has a vested interest that the process of European integration continues. "It's in our joint interest that the structural weaknesses of some individual countries are effectively and consequently tackled," Ms Merkel said, without mentioning specific countries.