Greece Eligibility for Next Aid Payment Under Scrutiny

Bloomberg

By Maria Petrakis and Natalie Weeks - Sep 19, 2011 12:01 AM GMT+0300

Greece’s ability to avoid default hangs in the balance this week as international monitors get set to assess whether Prime Minister George Papandreou can meet the conditions of rescue loans.

European Union and International Monetary Fund inspectors hold a teleconference call today with Finance Minister Evangelos Venizelos, to judge whether the government is eligible for its next aid payment due next month and on track for a second rescue package approved by EU leaders July 21.

Greece is rushing to meet demands amid doubts from partners it is doing enough to receive a sixth tranche of loans to prevent default. As Papandreou fights investor doubts and domestic protests, 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. IMF and EU monitors suspended their review earlier this month after discovering an unexpected hole in the budget.

“We must not become the easy alibi for the weakness of European and international institutions to manage this crisis,” Venizelos told reporters in Athens yesterday, in comments televised live on state-run NET TV. “We must give a final solution to the attacks on the strongest currency of the world, which is the euro.”

Venizelos said some measures in the five-year 78 billion- euro ($107 billion) medium-term budget plan adopted in June may need to be brought forward to meet targets, after announcing a property levy to help raise 2 billion euros a week ago.

‘Whatever It Takes’

After a two-day meeting of EU finance ministers and central bankers that ended Sept. 17, Sweden’s Anders Borg said Greece hasn’t done enough to meet its budget targets.

“The Greek government has not been consistent in their message on implementation,” Borg said in an interview in Wroclaw, Poland. “They must stick to one message: that they are going to deliver, whatever it takes.”

Yesterday, German Chancellor Angela Merkel’s party lost a regional election in Berlin, the last of seven state ballots this year that have seen the coalition parties punished amid voter anger over her handling of the debt crisis.

Greek two-year notes rose for the first week in two months last week as traders trimmed bets for a pending default after the leaders of Germany and France signaled a commitment to keeping Greece in the euro area. Two-year yields fell more than 20 percentage points in the three days through Sept. 16. They had climbed above 80 percent for the first time on Sept. 14 amid speculation the country wouldn’t be able to meet its obligations to investors.

‘Reserve’ System

Papandreou will convene his Cabinet again after Venizelos’s call today with the EU and IMF monitors. The finance minister will set out plans announced Sept. 6 to accelerate state asset sales and cut spending by placing civil servants in a “reserve” system and shutting down dozens of government agencies.

Greece’s three main aims are to meet targets for 2011 and 2012, create a primary surplus as soon as possible and pursue structural reforms with vigor to shield the country, he said yesterday.

Venizelos is blaming a third year of a deepening recession for failing to meet budget targets. The announcements this month including the property levy are a bid to show Greece is serious about addressing its benefactors’ concerns, key to getting the 160 billion-euro package agreed to in July. That would replace last year’s 110 billion-euro package.

‘Best Possible Terms’

“Our problem is to ensure that we get the sixth payment and each future payment with the best possible terms as we can’t keep having a repeat of the same scenario,” Venizelos said in Wroclaw, according to a Finance Ministry statement.

He dismissed talk of the country declaring bankruptcy and said Papandreou canceled his planned week-long U.S. visit on Sept. 17 to be prepared to take quick decisions this week, when Parliament votes on the July 21 package, which also gave Europe’s rescue-fund expanded authority.

Papandreou had planned to meet officials including IMF Managing Director Christine Lagardeand U.S. Treasury Secretary Timothy F. Geithner on his trip to New York and Washington. His first meeting was scheduled for New York yesterday. A separate meeting this month between Lagarde and Venizelos is still planned, a Finance Ministry official said.

Papandreou last week promised a “decisive battle” for budget cuts to persuade European governments and the IMF to release the 8 billion-euro loan installment.

Next Meeting

Greece is now looking to the next meeting of euro-area finance ministers, on Oct. 3, for a decision on the release of the installment. The loan would be disbursed by mid-October, enabling the government to pay its bills through the end of the year.

Former IMF head Dominique Strauss-Kahn said that forcing Greece to pay back its debts would unacceptably impoverish the country, and that everyone must be willing to accept losses on Greece’s debts.

“They can’t pay,” Strauss-Kahn said in his first interview yesterday since charges of assaulting a Manhattan hotel maid were dropped. “The efforts of European leaders have been too little, or too late, or often both too little and too late.”

Greece has the cash reserves to cover its needs for October, Deputy Finance Minister Filippos Sachinidis said on Sept. 12.

Cuts in Wages

Higher taxes and cuts in wages and pensions in return for a 110 billion-euro May 2010 package of loans from the EU and IMF have weighed on the Papandreou’s standing with Greeks, with his Pasok party now trailing the opposition in polls. Nine in 10 Greeks are dissatisfied with the government and opposition’s handling of the crisis, according to a poll of 1,216 Greeks by Public Issue for Kathimerini newspaper on Sept 11.

Opposition New Democracy’s lead over Pasok is now four percentage points, with the poll showing neither party would win an outright majority in parliament. The poll was conducted Sept. 2 to Sept. 7 and the margin of error is 2.9 percentage points.

New Democracy leader Antonis Samaras yesterday repeated a call for elections, promising Greeks he would renegotiate the terms of the financing package if his party wins a majority in parliament.

“The biggest weapon the country has right now is elections and clear solutions,” he said. New Democracy needs “the clear mandate of the people to renegotiate” the agreements.

To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net