(See EXT4 <GO> for more on the European debt crisis.)
Sept. 19 (Bloomberg) -- Prime Minister George Papandreou’s government will hold another call with its main creditors tomorrow after a “productive” round of talks aimed at staving off default.
Finance Minister Evangelos Venizelos held “substantive” discussions with European Union and International Monetary Fund officials about securing a sixth instalment of rescue funds, the Athens-based finance ministry said in an e-mailed statement after a teleconference tonight. A second call will be held tomorrow evening. U.S. stocks pared losses after the statement.
As Papandreou fights investor doubts and domestic opposition, European leaders are squabbling over the terms of the July agreement and the prospect that they will be forced to channel more money to keep Greece in the currency union. U.S. Treasury Secretary Timothy F. Geithner said in an interview today that Europe will eventually adopt some of the same measures the U.S. took after the 2008 financial crisis.
“We can’t move along without real implementation of fiscal reforms and we are late,” Venizelos said in Athens earlier today. “We must reach the end of December with a cash balance result that’s within fiscal targets.”
The Standard & Poor’s 500 Index pared an earlier loss of 2.3 percent to close 1 percent lower at 1204.09 points. While Greece says it has enough cash to cover its needs for October, any disbursement of new funds would likely only see it through to the end of the year.
Talks resumed after IMF and EU monitors earlier this month suspended the review for a sixth tranche of loans following the discovery of an unexpected hole in the budget.
Greek bonds plunged today on concerns that the country would fail to qualify for the payment, the latest from a 110 billion-euro ($151 billion) bailout agreed last year. The yield on the 10-year bond rose 183 basis points to 23 percent, while two-year notes added 625 basis points to 61.38 percent.
That increase may boost the country’s borrowing costs at an auction tomorrow of as much as 1.25 billion euros of 13-week bills. Greece was forced to pay 4.5 percent on similar maturity notes at the last auction, more than twice what Germany pays to borrow for 10 years.
The austerity measures demanded in return for the emergency loans are deepening a three-year recession, making it harder for the government to meet the deficit goals laid out in its aid package. The IMF now expects the economy to shrink 5.5 percent this year and another 2.5 percent next year, before growth resumes in 2013.
The government will tomorrow release final data on its budget shortfall in the first eight months. The preliminary numbers showed the deficit widened 22 percent in the first eight months to 18.9 billion euros, more than the target of 18.1 billion euros for the period. Greece pledged to reduce its deficit to 7.6 percent this year from 10.5 percent in 2010.
Additional measures are needed to reduce the deficit to a sustainable level, Bob Traa, the IMF’s resident representative in Greece, said today.
It was “appropriate and important” to underline that the IMF disagreed with the view that the program carried out by the government has been unsuccessful to date, he said. “Impressive fiscal consolidation has happened.”
The slippage on the deficit prompted Venizelos to say yesterday that some measures in the five-year 78 billion-euro medium-term budget plan adopted in June may need to be brought forward. The pledge came a week after the government announced a property levy to help raise 2 billion euros to cover the gap for this year.
The European Commission isn’t demanding more of Greece than was agreed to in the international aid program for the country, EU economics spokesman Amadeu Altafaj told reporters in Brussels.
“The only thing that is on the table is full compliance with the agreed targets. No more, no less.”
As officials scramble to keep Greece from defaulting, European ministers are looking for ways to stamp out a region- wide crisis that’s threatened to engulf Spain and Italy. Geithner said today that new crisis-fighting measures may eventually be agreed even after some European officials poured cold water on his proposals at a summit in Poland at the weekend.
“I think you’re going to see them draw on the lessons of our crisis, draw on the lessons of things that worked here in the United States,” Geithner said in a Bloomberg Television interview today in Washington. “I think you’ll see that reflected in some of the choices they make.”
In the aftermath of the September 2008 bankruptcy of Lehman Brothers Holdings Inc., U.S. regulators implemented the Troubled Asset Relief Program and conducted stress tests on the largest banks. The Federal Reserve set up the Term Asset-Backed Securities Loan Facility, or TALF, to keep consumer credit flowing.
Greece’s Venizelos on Sept. 17 dismissed talk of the country declaring bankruptcy and said Papandreou canceled a planned week-long U.S. visit. He preferred to stay in Athens this week to take quick decisions as parliament prepares for a vote on the July 21 rescue package.
Greece is now looking to the next meeting of euro-area finance ministers, on Oct. 3, for a decision on the release of the instalhment. The loan would be disbursed by mid-October.
--Editors: Andrew Davis, John Fraher
To contact the reporters on this story: Maria Petrakis in Athens at firstname.lastname@example.org; Natalie Weeks in Athens at email@example.com
To contact the editor responsible for this story: John Fraher at firstname.lastname@example.org