Debt-saddled Greece has moved closer to getting the vital bailout funds it needs to avoid a disastrous default after persuading international debt inspectors to return to Athens and resume reviewing its austerity program.
The euro jumped on the news, trading up 0.7 percent at US$1.370.
The common currency and global stocks had been up for most of the day amid growing expectations that Greece will get the next 8 billion euros (US$11 billion) of aid money. Without the money, the country would default on its debts within weeks, a major blow to the European banking system and wider economy.
Photo: Reuters
The decision to resume the review early next week implies that Greek Finance Minister Evangelos Venizelos convinced officials from the European Commission, the European Central Bank and the IMF that Greece would be able to cut its budget deficit in line with promises made last year in return for 110 billion euros in rescue loans.
“Good progress was made and technical discussions will continue in Athens over the coming days,” a commission statement said after a two-hour conference call on Tuesday between the so-called troika and Venizelos. “The full mission is now expected to come back to Athens early next week to resume the review, including policy discussions.”
A commission spokesman declined to say whether Venizelos offered new cuts or taxes beyond what has already been announced. The Greek finance ministry said technical experts were still finalizing spending plans for this year and next year, and that talks would resume at the annual IMF meeting in Washington this weekend.
Greek Prime Minister George Papandreou was scheduled to chair a ministerial meeting yesterday that was expected to focus on the outcome of the teleconference.
The troika’s assessment of Greece’s efforts to cut spending, privatize state assets and reform its struggling economy is key to eurozone finance ministers’ decision on whether to transfer the next aid installment at their meeting early next month. The money had originally been expected this month, but the troika left Athens earlier this month amid disagreements over whether Greece was fulfilling its promises.
Without the aid money, Greece’s cash reserves will run out in about the middle of next month, forcing it to stop paying public-sector salaries and eventually default on its debt. A default could plunge Europe’s banking system into turmoil and potentially push Europe and other parts of the world back into recession.
Most analysts still think Greece will have to restructure its debts at some point, especially if its economy remains mired in recession. Fitch Ratings said in a report on Tuesday that it expected Greece to eventually default, but to do so while remaining in the eurozone.
An IMF report on Tuesday showed that the budget woes of Greece, at the heart of Europe’s problems, had risen.
The IMF revised up its projection of Greek debt to 189 percent of GDP next year, from a June estimate of 172 percent.
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