Greece: will get loans in time to avoid default

BERLIN - September 27, 2011

Reports that European leaders are considering bolder moves to relieve Greece and other countries of their debt burden have buoyed spirits in financial markets, though officials in Chancellor Angela Merkel's government have downplayed such speculation.

The current plan is to have Greece implement painful debt-reduction measures in exchange for rescue loans.

Greece's international creditors are holding up payment of the next batch of those loans until a review of the reforms is completed in the coming days. Without the money, Greece faces bankruptcy in mid-October, potentially sending shock waves through the financial sector in Europe and abroad.

"I am very confident in ... the disbursement of the sixth tranche," Finance Minister Evangelos Venizelos said, speaking above the sound of chanting from protesting tax office workers outside the ministry, who blew whistles and set off a fake siren. "But we must do what has been agreed."

The minister said the country had already made great efforts to achieve its fiscal targets, but that a "hyper-effort" was necessary to fully meet its commitments.

Some experts, however, say the current course of austerity is untenable and that Greece will need bigger debt relief. Analysts say that could be achieved by imposing tougher losses on private bondholders, boosting capital in European banks that would take such losses, and increasing the size of the rescue fund.

Greece had originally expected debt inspectors from the International Monetary Fund, the European Central Bank and the European Commission to complete a review of its finances in September and approve the sixth installment of loans from its euro110 billion ($149 billion) bailout.

But the inspectors, known collectively as the troika, suspended their review earlier this month amid talk of missed targets.

Venizelos said the troika would return to Athens this week, and that the next bailout installment, worth euro8 billion ($10.8 billion), would be paid out in time.

In Berlin, Greek premier George Papandreou told a conference of the Federation of German Industries that "we are borrowing to repay" - but also stressed that Europe needs to show it can get its act together.

"I can guarantee that Greece will live up to all its commitments," Papandreou said ahead of an evening meeting with Chancellor Angela Merkel. He promised that Greeks will "fight our way back to growth and prosperity."

The government recently announced new debt-reducing measures, including pension cuts and tax hikes, fueling outrage among Greeks who have suffered through a year of austerity. Lawmakers are to vote Tuesday night on a new property tax.

Unions have responded with repeated strikes and protests. Public transport workers walked off the job Tuesday for two days, and were to be joined by taxi drivers on Wednesday. Tax office workers were also on strike.

Given the sacrifices being made by ordinary Greeks, Papandreou said that the "persistent criticisms leveled against Greece are deeply frustrating."

"You as businesspeople, you know that inspiration, innovation and motivation are important parts of success," he told representatives of Germany's leading industries. "If people feel only punishment and scorn, this crisis will not become an opportunity - it will become a lost cause."

He added that Europe needs to prove it can get its act together. Germany, Europe's biggest economy, has been a sometimes-reluctant leader of the rescue efforts.

"We must prove to the markets that we have a firm grip on the debt crisis and that we are determined to resolve it together," he said.

Merkel, also speaking at the industry forum, pledged support for Greece but didn't promise any specific new measures. She expressed "absolute respect" for structural reforms pushed through by Papandreou's government.

"The all-important thing is - and we will provide every assistance that is wanted from the German side - that Greece wins back confidence; that we get out of this terrible development that there is bad news every month; and that the impression arises on the markets that Greece is on the right track," she said.

Merkel said Germany would do what it can, whether through private industry or government efforts.

However, she once again rejected the idea of pooling European countries' debt - for example by issuing joint so-called eurobonds. And she said Germany is "not available" for further economic stimulus programs.

On Thursday, Germany's parliament is to vote on beefing up the powers and lending capacity of the eurozone's euro440 billion ($595 billion) rescue fund - a facility that already has intervened to help Ireland and Portugal.

German officials, facing distaste within Merkel's center-right coalition at the idea of endless bailouts, have sought to cool down expectations of further increases anytime soon.

Spanish Finance Minister Elena Salgado denied market speculation that the European Union is considering raising the size of the fund to euro2 trillion ($2.7 trillion) - saying in a television interview that "it is not on the table, nor has it been discussed."


Elena Becatoros reported from Athens, Greece. Derek Gatopoulos in Athens contributed.

Copyright © 2022 WPVI-TV. All Rights Reserved.