GREEK PRIME minister George Papandreou has raised the prospect his administration faces having further austerity measures imposed on it if he draws down an emergency aid plan from the EU and IMF.
With pivotal talks in Athens on Monday to centre on the conditions Greece’s rescuers will lay down for any intervention, Mr Papandreou told parliament in Athens the plan “will hurt”.
The euro retreated against the dollar yesterday as markets mulled the possibility of a rescue and Greek 10-year bonds rose yesterday to a new high of 7.4 per cent, well above the levels seen last week before euro group countries pledged last Sunday to provide €30 billion in bilateral loans to Greece if necessary.
A further €15 billion in loans would be available from the IMF, although the Washington-based body would be likely to insist on very harsh terms from Athens.
The talks follow a formal request for discussions on the parameters of any rescue from finance minister George Papaconstantinou. While stopping short of a request to trigger the aid mechanism, the move was widely interpreted as a key step towards drawing down the credit line.
“The general read is that Greece is certainly very interested in the detailed terms of the scheme,” said a diplomatic source.
Mr Papandreou urged the Greek people to think about what would have happened in the event of bankruptcy, saying his government was taking steps to have the aid plan ready to be triggered if necessary.
“Whether the mechanism is activated or not will be judged based on what’s in the interest of the country, the need for calm and security in the community and economy.”
Greece’s talks with officials from the EU Commission, the IMF and the European Central Bank come one day before a planned bond sale at which the country will try to sell €1.5 billion in three-month debt.
“It’s a matter of preparing a joint programme of conditionality and financing if needed and if required,” said European economics commission Olli Rehn at a meeting of finance ministers in Madrid.
Finance ministers said at the meeting that Greece does not have an immediate plan to trigger a rescue plan. Spanish minister Elena Salgado, chairwoman of the meeting as part of her country’s rotating presidency of the EU, said ministers had no plans to decide any further action on Greece in Madrid.
Mr Papandreou has already taken drastic measures to cut public sector pay, while curtailing pension entitlements and seeking to improve tax collection.
However, German finance minister Wolfgang Schaeuble said yesterday that the Greek recovery plan “isn’t really on track”, adding that the EU and IMF should work together to restructure the country’s deficits.
“We agree Greece should now also undertake the required preparations with the International Monetary Fund,” he said.
Any new austerity measures would fuel pressure on Mr Papandreou, who has faced down a series of street protests by workers angry at draconian measures to correct Europe’s biggest deficit and becalm market anxiety about a possible default.
The ministers in Spain are discussing a call from Mr Rehn for stronger budget co-ordination. Internal markets commissioner Michel Barnier is to present a new bank tax plan to them today.
