EU, private sector should rescue Greece next: IMF

AFP, Washington and FRANKFURT, Germany

Fri, Jul 15, 2011 - Page 10

The IMF on Wednesday said that Greece needed another 104 billion euros (US$147 billion) in aid to avoid a default and that it should come from the EU and private creditors.

In a report on the state of its rescue loan to Athens in May last year, a bailout package coordinated with the EU, the IMF said it intended to continue its own financing program, but added that Greece was continuing to stagger.

The IMF estimated that Athens requires 104 billion euros in fresh financing — 71 billion euros from the EU and 33 billion euros from banks and other bodies in the private sector.

Although Greece has met key targets in the IMF’s austere reform program, the fund warned the government has little margin of error to avoid defaulting on its 330 billion euros of debt.

“Capital account pressures in Greece remain acute and Greece continues to face extremely high spreads, with large rollover requirements generating financing needs well beyond normal Fund limits,” the IMF said.

It projected Greece would suffer a deeper recession this year than previously thought, with the economy contracting 3.9 percent, instead of 3 percent.

“The authorities recognized a need for additional external financing to support implementation of their policy program,” it said.

The report came as Greece was hit with a debt downgrade from ratings agency Fitch to junk status, effectively one step above default.

Fitch lowered Greece’s rating to “CCC,” from “B+,” citing the absence of a new EU-IMF program for Greece and growing uncertainty about the role private investors would play in any new bailout plan.

Fitch was the last of the three global agencies to demote Greek bonds to junk status, following actions by Standard & Poor’s and Moody’s last month.

The possible involvement of banks, insurers and pension funds, opposed by the European Central Bank (ECB), is a factor behind the turmoil on financial markets and has spurred selloffs of the debt of Italy and Spain, the third and fourth-largest economies in the 17-nation eurozone.

The IMF said on Wednesday that it saw the private sector contributing “voluntary rollovers/maturity extensions” on Greece’s debt “to reduce financing needs by 33 billion euros through June 2014.”

“Additional support from euro area member states of 71 billion euros is assumed through June 2014” in addition to the 80 billion euros they pledged to the EU-IMF bailout in May last year, the report said.

The IMF’s 30 billion euro commitment would remain the same.

Meanwhile, Spanish Finance Minister Elena Salgado joined the ECB yesterday in voicing opposition to private sector involvement in a future financial rescue plan for Greece.

“We always said we had to be careful ... that the participation by the private sector in resolving the Greek problem was not a good idea,” Salgado told the German newspaper Sueddeutsche Zeitung in an interview.

“Debate over this question is one of the reasons for tensions on financial markets and it must be clarified as soon as possible, with a clear commitment by eurozone countries,” Salgado said.