EU to decide Greek loan extension in early 2011
Thursday, December 9, 2010
ATHENS, Greece (AP) — The European Union will likely decide early next year on extending Greece’s repayment period for the bailout loans that saved it from default, top EU economic official Olli Rehn said Thursday.
Greece has to start repaying loans of up to 110 billion ($145 billion) from the EU and International Monetary Fund in 2013. EU governments have said they are considering pushing back that date by 4 1/2 years to put it in line with the deadlines of Ireland’s own bailout.
The move comes as EU officials make efforts to ease the pressure in debt markets that forced Ireland’s rescue last week and threatened to engulf Portugal as well as larger economies like Spain and Italy. While the EU has resisted any big moves, such as boosting its bailout fund or creating European bonds to share the debt burden, it has focused on austerity plans and making bailout repayment terms more flexible.
In Greece’s case, the fear is that its economy will not be growing sufficiently by 2013 to generate enough revenue to pay back its debts.
Rehn said the European Commission was examining the date extension “following the decision to do so by the EU finance ministers.”
“We stand ready to make the concrete proposal early next year, and I’m certain that it will receive the support of EU finance ministers,” the commissioner told reporters after meeting with Greek Finance Minister George Papaconstantinou.
Speaking at a conference outside Athens earlier in the day, Rehn said that the extension “will mean that we will be able to go beyond and stabilize (Greece’s) debt dynamics and overcome the hump in debt repayment, especially in 2014 and 2015.”
“This will certainly reinforce stability and confidence in the Greek economic reform program,” he said.
Rehn expressed “sincere admiration” at the progress of Greek financial reforms, which have included overhauling the pension system, cutting civil service salaries, trimming pensions and increasing consumer taxes.
Greece must lower its budget deficit from the 15.4 percent of gross domestic product it stood at in 2009, to below the eurozone limit of 3 percent of GDP by 2014. Its finances are under strict supervision by the IMF and EU, and the quarterly disbursement of funds from the bailout loans depends on Athens meeting financial targets.
“By succeeding in its program, Greece is regaining the confidence of its partners in Europe and beyond,” Rehn said after his meeting with Papaconstantinou. “One sign of this is that the council of EU finance ministers is ready to look positively into the extension of the repayment period of the loan for Greece. I am certain this will dispel any doubts over Greece being able to repay its loan.”
On Tuesday, IMF managing director Dominique Strauss-Kahn said on a visit to Athens that he supported the extension without imposing additional demands for economic austerity.
The European Union is seeking to toughen fiscal rules for countries using the euro to prevent a repeat of the crises seen in Greece and Ireland and contain the debt market turmoil which some fear could drag in other countries with shaky finances, such as Spain and Portugal.
Rehn said the EU was determined to see the reforms through, adding that sanctions for overspending would inevitably be part of a future enforcement mechanism.
“We are taking fundamental measures to reform our economic governance,” he said during the conference earlier in the day. “Let me be very clear on this: We will not stop until we have accomplished our mission no matter what the challenges might be.”
He added: “We need effective enforcement ... Of course sanctions in the midst of a crisis serve no purpose when the damage is already done. But at an early stage they raise the credibility of the rules.”