Greece is preparing to announce new austerity measures and a bond issue this week, amid further signs that the European Union is crafting a multibillion-euro plan to help the country fund its borrowing if necessary.
The Greek government plans to unveil the extra measures in the next few days – perhaps as early as Monday – after a visit to Athens by Olli Rehn, European commissioner for economic and monetary affairs.
Athens hopes that more tax rises and spending cuts will convince the markets and the EU of its determination to slash its budget deficit at least 4 percentage points to 8.7 per cent of gross domestic product in 2010, Greek officials said.
Christine Lagarde, the French finance minister, said Greece would get the eurozone’s help to refinance its debt with support coming from governments, private investors or public-private partnerships.
“I have no doubt that Greece will be able to refinance itself, using means which we are currently exploring, and for which we have a number of proposals,” Ms Lagarde said on French radio on Sunday. “It would involve private partners or public partners or sometimes both.”
As the Financial Times reported on Saturday, Germany’s biggest banks are looking at buying Greek debt backed by financial guarantees from the German government. The guarantees could be provided by KfW, the state-owned development bank.
With French banks reluctant to increase their exposure to Greek debt, one option for Paris would be to issue debt guarantees through state-owned Caisse des Dépôts, the French equivalent of KfW.
Officials in Paris declined to expand on Ms Lagarde’s comments, saying that no decisions had been taken on a rescue plan and no announcements would be made until Greece’s latest efforts to cut its deficit had been evaluated by EU officials on March 16.
The additional measures to be announced by Athens are expected to include a rise in value added tax, another increase of up to 30 per cent in the special consumption tax on fuel, duties on tobacco and alcohol, and cuts in civil servants’ pay. It might also include references to some structural measures such as the removal of barriers to entry in a number of professions.
The package might be worth up to 2 per cent of GDP or about €4.8bn ($6.5bn, £4.3bn), although the EU officials who visited Athens last week are said to have identified the need for additional budget measures worth the lower figure of about €3.6bn, according to an official close to the talks.
Luka Katseli, Greek economy minister, confirmed in a television interview on Sunday that EU officials had concluded that Greece’s GDP growth forecast was optimistic and had asked for extra measures to meet the budget deficit target.
Angela Merkel, the German chancellor, maintained the pressure on Athens, saying she was “very grateful the Greek government is planning very courageous savings measures and other measures to improve the deficit situation”.
Berlin has been pressing Athens to sign up to tougher reforms to make the Greek pledge of getting to grips with its budget deficit plausible to international investors as much as to German taxpayers.
Germany hopes that Athens might then be able to shoulder its looming refinancing by itself. If not, German officials have said, Berlin would look at providing help together with other eurozone nations. “There is no political decision about financial assistance for Greece,” a government spokesman said on Sunday.
Ms Merkel will meet George Papandreou, Greek prime minister, in Berlin on Friday. Mr Papandreou told the Greek parliament last week that Athens would meet its obligations to the EU and would in return “demand European community solidarity”.
Banking officials told the FT on Friday that they were prepared to consider a plan to buy Greek debt with guarantees provided by KfW as long as other eurozone banks were involved by their governments.
No firm decisions had been made, said a senior German lawmaker. “First, Athens has to do its homework. Were it to do so, and still have trouble refinancing on the markets, a number of scenarios are under consideration.”
Greece, which faces debt redemptions of more than €22bn by the end of May, is expected to borrow up to €5bn via a syndicated bond issue in the next few days. The bond issue is seen as a critical test of international investors’ appetite for Greek paper, after a warning by Standard & Poor’s last week of another possible downgrade in a month’s time.
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