Global Economics

EU, IMF to Iron Out Details with Greece


A high level meeting today in Athens, delayed by Europe's ash cloud flight ban, will thrash out details of a three-year rescue plan for debt-ridden Greece

The stage is set for EU, IMF and Greek officials to meet in Athens on Wednesday (21 April), as the different sides attempt to thrash out the lending terms of a three-year financial support package for the debt-ridden country.

Iceland's volcanic ash travel chaos delayed Monday's original start date, with record high 10-year Greek bond yields of 7.85 percent on Tuesday providing the new backdrop.

The talks are unlikely to ease tensions in Greece, where public sector workers have already seen salaries dramatically cut this year and a 24-hour public sector strike is expected to bring the country to a standstill this Thursday.

The European Commission has indicated that no new austerity measures will be demanded of Greece this year, but is pressing Athens to give more details on the years to come.

Athens "needs now to be more specific regarding fiscal measures for 2011 and 2012, in order to deliver an ambitious program of structural reforms," said commission economy spokesman Amadeu Altafaj in Brussels on Tuesday.

The Greek centre-left government has announced spending cuts and tax hikes worth around €16 billion, as it attempts to shave four percent off its budget deficit this year after it reached 12.7 percent in 2009.

Greece has promised to bring its deficit below three percent by 2012.

Figures

EU officials said the talks could take up to three weeks, with many questions yet to be answered, including the total three-year lending figures and the contribution to be made by the IMF.

Following a snap weekend teleconference meeting earlier this month, eurozone finance ministers agreed to lend Greece up to €30 billion this year, with the IMF expected to contribute a further €10-15 billion to the 2010 pot.

Wednesday's Financial Times Deutschland reported sources as suggesting the total IMF contribution over three years could be as little as €18 billion however, placing a greater financial strain on euro area capitals, and in particular Berlin, should it turn out to be the case.

The talks in Athens are also likely to concentrate on a three-year lending figure, with German central bank governor Axel Weber saying Greece may need up to €80 billion in financial aid to avoid default, according to reports in the Wall Street Journal on Tuesday.

The central bank chief told a small group of German lawmakers at a closed-door meeting earlier this week that Greece's situation was worsening and that "the numbers are changing all the time," reports the newspaper.

Germany

Mr Weber's comments are unlikely to help Berlin's position, coming barely three weeks before crucial elections in the North Rhine-Westphalia region, the most populous federal state in Germany, with over 18 million citizens.

Polls suggest a majority of Germans are opposed to bilateral aid for Greece, with rumours running the corridors of Brussels that Ms Merkel would like any Greek request for aid to come after the German vote.

With the threat of several legal challenges also hanging in the air, a recent study produced by the Centre for European Policy think-tank suggests eurozone aid would contravene the EU rules.

"A bail-out of bilateral loans in Germany or another member state is illegal under EU law," says the study by Thiemo Jeck and Bert van Roosebeke, reports German daily Handelsblatt.

Responding to questions from MEPs in Strasbourg on Tuesday, Commission President Jose Manuel Barroso said several times that he is confident the Greek solution does not breach the EU treaties.

The solution found so far is "fully in line with the treaty," he said. "It is simply wrong to say that it is some kind of bailout."

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