Greek aid depends on budget cut plans

Greece has been told to produce detailed plans this week to meet its budget deficit reduction targets in 2011 and 2012, as well as this year, before it can qualify for a combined rescue package from the International Monetary Fund and fellow euro zone members.

As pressure increased in Athens to step up the pace of negotiations, Germany made it clear that a three-year programme must be agreed with the IMF, the European Central Bank and the European Commission, before the combined €45bn ($60bn) loans can be approved to meet the Greek government debt repayment schedule for the current year.

Wolfgang Schäuble, German finance minister, said no decision had been taken on to go ahead with the €30bn euro zone loan package: "It depends on whether Greece carries on with its strict savings measures in the years ahead."

The Commission endorses Berlin's view that Greece must come up with a detailed programme for cutting the budget next year by a further 3-4 percentage points of gross domestic product.

The Greek finance ministry is under pressure to accelerate fiscal and structural reforms, including an increase in value added tax, to meet the budget deficit reduction targets for 2011 and 2012.

But the government wants to avoid the political cost of imposing more indirect tax increases this year, when the economy faces a deeper than expected recession.

The German attitude is that a longer-term programme is required not only to reassure the IMF but also the capital markets, on the credibility of the Greek austerity programme.

George Papaconstantinou, Greek finance minister, said on Sunday that the aid would arrive in time to help Greece refinance €8.5bn of bonds maturing on May 19 and warned that investors betting his country would default would "lose their shirts".

Olli Rehn, the European monetary affairs commissioner, said in Washington that the mechanism to authorize assistance for Greece could be activated quickly but that each euro zone country must follow its own constitutional procedures. "We should be able to complete work on a joint programme by early May," he said.

Dominique Strauss-Kahn, IMF managing director, said: "Everyone involved in the financing effort recognizes the need for speed.

"I am confident we will conclude discussions in time to meet Greece's needs. We are all aware of the seriousness of the situation and the courageous efforts being made by the Greek people."

There were indications from Brussels that some euro zone members which did not require separate parliamentary approval might be able to lend money as early as this week but Mr Schäuble said the agreement on a combination of voluntary and bilateral loans still required full approval by EU heads of state.

He will hold talks on Monday with German party leaders on an accelerated parliamentary procedure to approve any loan when it gets the green light from Brussels.

(Published by CNN - April 26, 2010)