Greece Is Said to Be Close to Deal on a Rescue Plan
The Greek government, rapidly running out of time to shore up its finances, was close to completing negotiations for assistance from the International Monetary Fund, European officials said on Friday.
As negotiators tried to wrap up the details of a letter of intent with the fund, the Greek prime minister, George Papandreou, began warning of new spending cuts and tax increases to keep the country afloat.
"The measures we must take, which are economic measures, are necessary for the protection of our country -- for our survival, for our future, so we can stand firmly on our feet," Mr. Papandreou said in Parliament, according to The Associated Press.
A crucial feature of the latest plan is a measure that would free the Greek government to lay off public sector workers, according to one Greek government official, who declined to be identified because of the sensitivity of the discussions. The low levels of productivity and high wages of Greece's large public sector have been a primary contributor to the country's debt problem
Until now, the government has not been able to lay off civil servants, whose employment rights are in effect constitutionally guaranteed, and their unions are the most aggressive opponents of efforts to overhaul the country's finances. Any move to start shedding public sector workers is sure to be met by a new spate of strikes.
In an important departure from previous plans, the monetary fund is pushing the Greek government to come up with spending cuts of about 8 billion euros that would be implemented within 12 to 14 months, according to people briefed on the discussions.
Earlier this year, the government said it would find savings of 24 billion euros over a three-year period. But the monetary fund is insisting on 8 billion euros in cuts early on in order to pressure the government to speed up and deepen the reform process. In the past, the government was criticized for relying too heavily on optimistic projections about unpaid takes.
Details of the plan are expected to be announced late Sunday, according to officials with the Greek government and the European Commission.
A spokesman for the European Union, Amadeu Altafaj, declined to comment in detail on what the remaining sticking points in the talks might be, saying that it was "wisest and most responsible at this stage to await the end of the discussions." He also said that no discussions were taking place about whether other countries that also use the euro currency and have come under pressure, like Portugal and Spain, would have access to similar financial aid if required.
Besides reducing the public sector payroll, another policy change high on the negotiators' list for Greece is getting the government out of the marketplace, the Greek official said. On Tuesday, top officials from Greece's main business lobby met with staff members of the fund and argued that the key to making the country more competitive was to open state-dominated sectors like health and energy to private investment.
Economists say that Greece's high consumer prices could be brought down quickly simply by deregulating the trucking industry, where license fees as high as $90,000 keep rates high and competition out. They note that it can be cheaper to ship a load of vegetables from Brussels to Athens than to truck it from one side of Greece to the other.
Mr. Altafaj, the European Union spokesman, said financial aid for Greece would not include a restructuring of the country's outstanding debt. That's "not even part of the debate in Athens currently going on," he said.
European leaders raced to complete their part of the long-delayed rescue package on Thursday, hoping to head off a chain reaction in other heavily indebted European nations. After Chancellor Angela Merkel of Germany declared her support for swift action, opposition parties in Berlin signaled a willingness to move quickly on legislation to send billions in loans to Athens before a bond payment deadline on May 19.
European leaders -- many of whom resisted the involvement of the monetary fund and who have now been prodded to action by its director, Dominique Strauss-Kahn -- have struggled for months for an effective response to the Greek problem. Meanwhile, critics say, the costs of a bailout have mounted drastically.
Moody's Investor Services downgraded its credit ratings on nine Greek banks on Friday, The Associated Press reported.
European leaders also sought to head off a harsh public reaction to the bailout plan. Olli Rehn, the European Union's monetary commissioner, said at a news conference in Brussels on Thursday that the loan package for Greece would benefit all nations that use the euro currency, not just one spendthrift country. "This is absolutely crucial for our economic recovery," he said.
[Source: By Landon Thomas Jr. and James Kanter, The New York Times, 30Apr10]
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