A THREE-YEAR cutbacks programme for Greece is expected to form part of the rescue plan for the country’s embattled economy being worked out with the EU and the International Monetary Fund (IMF).
In Washington yesterday Greek finance minister George Papaconstantinou said he wanted to reassure his European partners that the “strong conditionality criteria” he was negotiating with the IMF would put an end to the fiscal situation his government inherited.
An indication of how the markets view how the crisis affecting Greece could affect sentiment on Ireland will be given today when Bank of Ireland announces plans to improve its capital position with a €3.4 billion package that will include a private placement and a rights issue.
The bank is expected to announce a €500 million private placement and a €1.2 billion rights issue. The remainder of the package will involve the conversion of preference shares held by the State into ordinary shares. The latter change will not affect the State’s de facto shareholding in the bank, which will remain at 35 per cent.
The price at which the new shares are placed with investors relative to Friday’s close will give an indication of how much appetite there is for investing in the bank and by extension being exposed to ireland.
The Greek rescue seems set to advance rapidly as a senior Brussels source said tentative plans are being made for euro group finance ministers to sign off on the deal in a special telephone conference this week.
The Greek finance minister said the bailout will cover a three-year period. He said Greece will have negative growth rates this year and perhaps next year. But, he promised, “we will be able to contain the cost of financing the [$300 billion] debt”.
Asked about privatisation, the Greek minister said there would not be a fire sale; but noted: “The Greek state has an enormous number of real estate assets – tens, hundreds of billions of euro. The proper exploitation of this will allow us to raise funds.”
In Washington, Mr Papaconstantinou has met with the head of the IMF, the governor of the European Central Bank, the EU’s finance commissioner and the leading members of the IMF board, including ministers from the US, Russia and China. The IMF held its spring meetings in the city at the weekend.
Canadian finance minister Jim Flaherty, his country’s representative on the IMF board of governors, said the size of the ultimate Greek package may be “more than had been said previously”. He declined to specify the amounts under discussion.
In Brussels, officials are working on the basis that the European authorities and the IMF will this week reach a deal with the Greek government on austerity measures. Germany and France each signalled that future cuts will have to be severe.
A “tough restructuring programme” for the next years was “unavoidable and an absolute prerequisite” if Germany and the EU were to approve aid for Greece, said German finance minister Wolfgang Schaeuble. As Angela Merkel battles deep-seated German resistance to the rescue, Mr Schaeuble plans to brief parliamentary leaders today.
The French minister, Christine Lagarde, described the aid effort as a “cocktail of indulgence and great strictness”.
The euro group ministers expect to hear soon from the European Commission and the European Central Bank (ECB), who are charged with assessing the loan application from Athens. Given the steep increase in Greek borrowing costs and concern to avoid any uncertainty over the rescue undermining the euro, they are widely expected to advise euro countries to trigger the aid.
Unanimous agreement would be required for the euro group ministers, acting on behalf of government leaders, to activate the aid plan.