GREECE AND its international sponsors are close to a deal on the execution of delayed bailout reforms, clearing the way for the release of a €12 billion loan to Athens.
The loan, Greece’s fifth under its €110 billion EU-IMF bailout, has been in question for weeks due to the government’s failure to implement measures agreed with its partners.
The imminent agreement will lead to an acceleration of related talks on a second bailout package for Greece, which could be worth as much as €60 billion. The country will need a new loan package in light of its likely exclusion from private debt markets next year. This is highly contentious, however, because of political resistance to bailouts in Germany, Finland and the Netherlands.
Although senior Greek sources dismissed suggestions that the country might have to concede external involvement in tax collection in return for a second bailout, EU leaders are expected to demand what may be considered an intrusive level of policy oversight if they are to go down that road.
Certain sources say Greece may have to offer collateral in return for any new aid plan. A further question to be resolved is whether finance ministers attempt to reduce the burden of Greek debt by seeking a voluntary agreement from creditors to extend the maturity of its bonds.
Their discussions have prompted a storm of resistance from the European Central Bank (ECB), which fears such an initiative would amount to a debt default and cause a renewed wave of contagion on fragile debt markets.
However, a member of the ECB’s executive board, Juergen Stark, suggested moves to encourage investors to buy new bonds to replace maturing securities could be an acceptable way of involving private creditors in the rescue effort.
Officials believe some form of private sector involvement would make it easier for German chancellor Angela Merkel to secure parliamentary support for a new bailout.
Greek sources expect the deal with the EU-IMF “troika” on the €12 billion loan will be finalised tomorrow before prime minister George Papandreou meets Luxembourg’s prime minister Jean-Claude Juncker, who presides over the group of euro zone finance ministers.
Of central concern to the “troika” was the lack of substantial progress on the country’s privatisation plan and other reform policies. Mr Papandreou had promised EU leaders in March that Greece would sell state assets worth €50 billion in return for an interest rate cut on its loans.
Taoiseach Enda Kenny was not granted a rate cut at that time because he refused to yield to a Franco-German push for the dilution of Ireland’s corporate tax regime, prompting a standoff which continues to this day.
Greece is soon expected to publish a timetable for its privatisation plan, possibly today. Local media reports suggest the government will have to accept external supervision over the initiative to ease concern about its willingness to proceed with the sales.
The agreement on the €12 billion will be subject to the approval of EU finance ministers, who are not due to meet until June 20th. This has fanned expectation that the ministers will be called together sooner to discuss the country’s situation.
Of key concern here is the uncertainty over the country’s funding outlook next year. Although the existing bailout assumes Greece will have access to market funding next year, EU economics commissioner Olli Rehn said that was now unlikely. “This calls for difficult decisions still in June,” Mr Rehn said yesterday.
The privatisation plan is hampered by the lack of an advanced land registry in the country, leading to legal uncertainty over the ownership of many public assets.
It is understood that the privatisation timetable, likely to be published today, will identify the Hellenic Post Bank and the government’s 20 per cent interest in telecoms operator Ote as key assets for sale.
Also on the block will be the state power and airport companies, highly sensitive for the Socialist government.
