International Monetary Fund Managing Director Dominique Strauss-Kahn said Greece, the first euro-area country to seek a bailout from the European Union and the IMF, needed to press ahead with measures to expand the economy.
“The problem is growth, growth, growth,” Strauss-Kahn told reporters in Athens today after meeting with Prime Minister George Papandreou. “No one would be talking about a debt crisis in Europe if there was high growth in Europe.”
Strauss-Kahn urged Greeks to support Papandreou’s government, which has braved months of strikes and protests to push through wage and pension cuts and tax increases to reduce a budget deficit that last year soared to 15.4 percent of gross domestic product, a record for the euro area. Those measures are needed for Greece to receive regular installments under the 110 billion euro ($147 billion) EU-led bailout and avert default.
Greece plans to trim the shortfall to 7.4 percent in 2011 from 9.4 percent this year, though its efforts have been complicated by slower-than-forecast revenue growth. The government predicts the economy will shrink 4.2 percent this year and 3 percent in 2011. Papandreou must also push through deeper cuts in state spending, including at hospitals, and wages at state-owned companies to meet the targets. Growth will resume in 2012, Papandreou repeated today.
Strauss-Kahn, whose visit has sparked protests, told Greeks that the IMF is “here to help you.” Labor-union groups plan to demonstrate against his appearance later before a parliamentary committee, which members of the leftist Syriza and Communist Party will boycott.
“Very many in Greece believe we are the bad guys,” he said. “You are better with us here than out of the country.”
An extension of the time Greece takes to repay the loans from the package will be worked out with the EU, he said.
Greece tapped the EU-IMF loans after concern about the deficit pushed its borrowing costs to record highs, leaving it virtually shut out of financial markets. Fallout from Greece’s debt crisis sent the euro to a four-year low in June and led to a surge in bond yields of other high-deficit euro-region countries as investors shunned their debt. On Nov. 28, Ireland was handed an 85 billion-euro lifeline.
Strauss-Kahn called the situation in Europe “serious” and recovery “slow,” saying it would take time for the EU’s institutions to learn to react more rapidly to crisis. He said the euro area should aim for 3 percent to 4 percent growth.
“I don’t agree with those who claim the future of the eurozone is at risk,” Strauss-Kahn said. “But it is a problem that must be dealt with. And for it to be dealt with successfully there must be a comprehensive, integrated way.”
European finance ministers today ruled out immediate aid for Portugal and Spain or an increase in the 750 billion-euro crisis fund, counting on European Central Bank bond purchases to calm debt-spooked markets.
The ministers expressed confidence that Spain and Portugal will tame their deficits and said the existing credit line is enough to defend them in an emergency.
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