Greek Finance Minister Yannis Stournaras said euro-area governments vowed to prevent Greece from defaulting next month while reviewing the nation’s eligibility for more aid amid a worsening recession.
“Significant” delays in Greece’s program to overhaul its economy and a deeper-than-forecast contraction approaching 7 percent this year require special steps to ensure Greece can redeem bonds held by the European Central Bank, Stournaras said. Greece must repay at least 2.6 billion euros ($3.2 billion) of debt on Aug. 20, according to Bloomberg data.
“There needs to be an intermediate solution,” Stournaras told reporters today in Brussels after attending his first meeting with euro-area counterparts. “There was a pledge that this will happen.” He declined to elaborate.
The government of Prime Minister Antonis Samaras faces the risk of running out of money and defaulting while seeking to qualify for an international aid disbursement of 4.2 billion euros. That payment, which was due in late June as the first tranche of a 31 billion-euro transfer, was put on hold because Greek parliamentary elections delayed a review of the nation’s fulfillment of fiscal-austerity conditions for the funds. At stake is whether Greece can stay in the 17-member euro zone.
Greece, which has struggled to meet targets for narrowing its budget deficit while receiving aid pledges of 240 billion euros over the past two years, has yet more ground to make up after holding elections in May and June that highlighted voter anger over the bailout terms. An inconclusive May 6 vote led to a June 17 rerun in which Samaras’s New Democracy party finished first with almost 30 percent of the vote.
Samaras formed a government with the Socialist Pasok party, which came in third, and the sixth-place Democratic Left with pledges to keep Greece in the euro while fighting for looser aid conditions from the region and the International Monetary Fund.
The next report from the euro area and the IMF on Greece’s budget-cutting efforts won’t come before the end of July and a decision on disbursing more loans to the country will be delayed until at least September, according to Stournaras.
“The implementation of the program has been significantly delayed in many areas,” he said. “We want to bring the program back on track.”
Samaras asked other European leaders in a June 27 letter to loosen the austerity requirements, while saying he would press ahead with an economic overhaul including the sale of state- owned assets. He said a Greek recession in its fifth year and record unemployment of around 23 percent require changes to targets for spending cuts.
“The recession is much bigger than what had been estimated,” Stournaras said today. “That creates a problem.”
Greece narrowed its deficit from more than 15 percent of gross domestic product in 2009 -- five times the European Union limit -- to 9.1 percent in 2011. The country’s spending gap is due to narrow to about 7 percent of GDP this year.
Stournaras said the euro area and the IMF have insisted that his government enact measures for 2012 that it has already pledged to take. Calling some of these “quite counterproductive,” he said the administration will seek alternative steps that it believes would have an equivalent impact on the deficit without being as economically harmful.
“We’ll see to what extent those are acceptable,” Stournaras said. “We have a very long road ahead.”
For 2012, Greece must find ways in the coming weeks to fill a 3 billion-euro budget hole resulting from the failure to enact measures approved in March, he said.
Greece faces a cumulative fiscal gap in 2013-2014 of 5.5 percent of GDP, the European Commission, the 27-nation EU’s executive arm, said in a May 30 report.
The commission report, part of an annual assessment of budget programs across the EU, listed shortcomings by Greek authorities in enacting an economic overhaul first outlined when Greece got an initial 110 billion-euro rescue from the euro area and the IMF in May 2010. A second 130 billion-euro loan package, coupled with the biggest writedown of privately held debt, followed this year.
Stournaras said his immediate concern is to seek “intermediate financing” to make debt payments in August. He didn’t rule out the possibility that such a step could extend to helping the government meet domestic cash needs until the next aid disbursement.
“We’ll discuss the whole thing,” he said. “There’s a pledge.”
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