World Business

Deal on Greece rescue imminent

(Xinhua)
Updated: 2010-04-30 17:02

BRUSSELS: A deal on a multi-billion-euro rescue package for debt-hit Greece appeared imminent on Thursday as the Greek debt crisis is showing contagion risk to the whole euro zone.

In a short statement released Thursday, European Commission President Jose Manuel Barroso said negotiations among the European Union (EU), the International Monetary Fund (IMF) and the Greek government on the joint rescue would be concluded in the coming days.

"The European Commission is making solid and rapid progress with the ECB (European Central Bank), the IMF and the Greek authorities to finalize the Greek adjustment program," he said. "The commission expects this work to be finalized in the coming days."

Barroso said all eurozone countries are also finalizing the procedures that will allow them to provide financial support to Greece as necessary.

Athens is facing a looming deadline to pay back 8.5 billion euros ($11.3 billion) of debt by May 19.

Confronted with unprecedented borrowing costs, Greek Prime Minister George Papandreou formally asked for activation of a joint aid program by eurozone governments and the IMF last Friday.

Eurozone finance ministers agreed a detailed aid package for Greece earlier this month, under which eurozone countries would provide loans to Greece on bilateral basis, with a total amount of 30 billion euros for the first year, while IMF was expected to release further 10 billion to 15 billion euros.

Talks on the final details of the joint aid were still going on among the EU, the IMF and the Greek government as Greece's deepening crisis sent global stock markets and the euro plunging in recent days.

There is an increasing concern that Greece may not get financial support in time, and a default by Athens would cause domino effect in the euro zone since Portugal and Spain as well as several other members are all faced with serious debt problems.

Barroso said the eurozone countries, the commission, the ECB and the IMF are determined to guarantee the overall financial stability of the euro zone.

EU Commissioner for Economic and Financial Affairs Olli Rehn, who is negotiating the joint rescue on behalf of the EU, also expressed confidence that "the talks will be concluded in the next days."

He said the outcome would be a multi-year program that would lead to major fiscal and also structural adjustment by Athens.

"Funding to Greece through the coordinated bilateral loans by the euro-area member states will be conditional to implementing the decisions required to meet the conditions of fiscal consolidation and structural reforms," Rehn said.

According to Vassilis Papadimitriou, a spokesman for Greek Prime Minister Papandreou, the rescue package would go beyond the amount pledged for the first year and could be worth 120 billion euros over a three-year period.

But Athens would have to take tougher austerity measures in exchange for the aid.

Rehn said the financial support would give Greece sufficient breathing space from pressures of the financial markets to decisively restore the sustainability of its public finances and to put the economy back on a path of sustainable growth.

Fears have grown that debt restructuring is inevitable for Greece if the EU-IMF joint rescue could not be ready in time, which means Athens would delay or limit repayment of its maturing government bonds.

But Barroso downplayed the possibility.

"There is no doubt that Greece's needs will be met in time," he said. "Debt restructuring in a euro-area member state is not an option and is not going to be part of the joint program."

The chief of the EU's executive commission also issued a veiled attack on credit rating agencies after they downgraded credit ratings of Greece, Portugal and Spain in the past days, which added to fears that the Greek debt crisis might be spreading in the euro zone.

"Amongst all the speculation, I would like to remind you that the European Commission has already taken action to put in place a regulatory framework on credit rating agencies, and will continue to watch closely the behavior of the financial markets during this crisis," he said.