Greece to Decide Whether to Seek Outside Aid
On Monday the Greek government will begin talks with EU and IMF officials to hash out details of a loan agreement which could provide Greece with loans estimated at 45 billion Euros ($63 billion USD). Greek Prime Minister told reporters, “We will have to make a decision about whether we activate this mechanism in the next few weeks.” Most investors believe Greece will ask for outside aid as high borrowing costs pressure the debt ridden nation. A lack of clarity about how the agreement will work has also sparked investor concerns. Many investors are wondering if the parliamentary approval required to set the aid mechanism in motion will delay the implementation of the loan package. Germany remains opposed to the proposed bailout. Greek Finance Minister George Papaconstantinou said it would take “one week, two weeks maximum” for the EU to implement the aid mechanism. Papaconstantinou also said, “We are quite comfortable that once the framework is in place, meaning the program together with the financing elements, we will be able to move very fast.”
Austerity Measures Unpopular But Necessary
Last month the Athens government implemented several austerity measures and cut the pay of about 600,000 public workers, froze pensions and raised taxes in an attempt to reduce the nation’s debt by a third to 8.7% of GDP. The European Commission said that if Greece taps the aid agreement there should be no need for further austerity measures. Greece’s central bank governor said the country should close several “loss-making and spendthrift” government agencies. Bank of Greece Governor George Provopoulos told reporters, “This is how we will manage to positively please the markets by ourselves, by reducing the deficit by 5 percent (of GDP), instead of the 4 percent we have pledged for in the Stability and Growth Plan.” The austerity measures are unpopular with Greek citizens. A recent poll showed that about half of those polled said their incomes no longer covered their needs and a majority believes that if the government triggers the aid package their standard of living will deteriorate further.
Greece Will Not Default Says Prime Minister
Prime Minister Papandreou said that the loan package was not a ‘bailout’ and will give Greece more time to deal with predicted economic contraction. Papandreou stated, “It gives us the room to maneuver to make the necessary changes to make our economy a viable one.” Greece faces future bond sales in April and May. In Madrid Papandreou said that Greece will not default. Papandreou stated, “We will not default. The problem is the cost of borrowing, and how long we can sustain that. I don’t see a problem even in May, but that doesn’t mean that we have closed the option of using this mechanism.”
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