May 31 (Bloomberg) -- European Union leaders will decide on additional aid for Greece by the end of June and have ruled out a “total restructuring” of the nation’s debt, said Jean-Claude Juncker, head of the group of euro-area finance ministers.
Inspectors from the EU, the International Monetary Fund and the European Central Bank are set to wrap up a review of Greece’s progress in meeting the terms of last year’s 110 billion-euro ($158 billion) bailout in the next few days. The EU will then formulate its plan for further aid to Greece, which remains shut out of financial markets a year after the rescue.
“We are waiting for their final judgment,” Juncker, who is also Luxembourg’s prime minister, said yesterday in Paris after meeting with French President Nicolas Sarkozy. “Their position will partly determine our position, so it’s too early. We will try to solve the Greek problem by the end of June.”
Under the terms of the rescue package, Greece was due to return to financial markets and sell about 30 billion euros of bonds next year. With its 10-year bonds yielding 16.4 percent, more than twice that of the time of the bailout, the EU has indicated Greece will need more aid to plug its financing gap. The IMF has threatened to withhold its share of the payments until the EU explains how Greece will be funded.
If, as expected, it turns out that Greece isn’t meeting the program’s conditions, euro-region countries must see what steps Greece can undertake to get back on track in addition to what it’s doing already, a German Finance Ministry spokesman said today, speaking on customary condition of anonymity.
As head of the group of euro-area finance ministers, Juncker “certainly knows what he is talking about,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said today in an interview in New York. Greek “debt restructuring is not on the table,” he said in the television interview.
EU and ECB officials remain divided over how to aid Greece, with some European leaders calling for new loans and a debt “reprofiling” -- convincing bondholders to voluntarily accept an extension of maturities. Germany is considering dropping its demand for an early rescheduling of Greek bonds, the Wall Street Journal reported today, citing people familiar with the matter whom it didn’t identify.
“The problem of the private-sector involvement will be examined with all the attention required,” Juncker said yesterday. Senior aides to European finance ministers are due to discuss Greece at a previously scheduled meeting tomorrow in Vienna.
The euro rose to a three-week high against the dollar on optimism officials will agree on further Greek aid before paring gains and trading at $1.4392 at 2:17 p.m. in Brussels, up 0.8 percent on the day.
ECB officials have said “reprofiling” is tantamount to default and would prompt the Frankfurt-based central bank to refuse to accept Greek bonds as collateral in their emergency funding operations, wiping out the capital of the Greek banking system, the biggest holder of the country’s bonds.
The EU and IMF will have to put up another 30 billion euros in loans to tide Greece over next year with the rest of its 2012-2013 financing needs covered by revenue from asset sales and other measures, the Financial Times reported yesterday, citing ECB Executive Board member Lorenzo Bini Smaghi.
The financial problems that are being experienced in Europe go “way beyond” Greece and a reorganization of the continent’s banking system is necessary, Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s biggest money manager, said in a Bloomberg Television interview in Hong Kong today. “I find it very difficult to restructure Greece without the understanding that we’re probably going to have to restructure Ireland and restructure Portugal.”
Time Running Out
Greek Prime Minister George Papandreou has announced an additional 6 billion euros of budget cuts for this year to meet the bailout goal of shrinking the deficit to 7.5 percent of gross domestic product. The government also pledged to speed 50 billion euros of state asset sales, mostly real estate, to pay down debt, which is set to reach almost 160 percent of GDP this year, the highest in the euro’s history.
The EU and IMF have called on Papandreou to secure multi-party support for the measures, which are part of a broader four-year austerity package. The country’s main opposition parties rejected the plan in a meeting with Papandreou on May 27. EU Economic and Monetary Affairs Commissioner Olli Rehn said after the meeting that it was “essential” for all parties to support the program and “time was running out.”
Antonis Samaras, head of New Democracy, Greece’s largest opposition party, said today that the terms of the Greek bailout must be renegotiated.
“We aren’t talking about renegotiating the targets but the interim stages and ways to achieve these,” Samaras said in an interview with state-run NET TV. He said he backed Papandreou’s plans to fight tax evasion and sell state assets, though he called for tax cuts to stimulate economic growth.
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