IMF comes to Greece's rescue
Mumbai, February 12, 2010
The International Monetary Fund on Friday joined the European Union in pledging support for Greece in its struggle to bring its ballooning budget deficit under control and contain its debt crisis.
The IMF's declaration follows an EU summit, which sent Athens a 'clear message of solidarity,' but produced no specific rescue plan, disappointing markets and sending both the euro and Greek government bonds lower.
'We stand willing and able to support Greece in ways that the Greek authorities think is appropriate,' IMF First Deputy Managing Director John Lipsky told reporters on the sidelines of an international central banking conference.
An EU source told Reuters earlier the bloc looked to draw on IMF expertise on designing financial rescues, but not the Fund's money.
European Central Bank President Jean-Claude Trichet also weighed in, offering help in monitoring Greece's efforts and drawing up 'necessary additional measures'.
'I confirm that the ECB will work with the European Commission in monitoring the implementation of the recommendations by Greece,' Trichet said in a statement.
Britain's Guardian newspaper laid the blame for limited progress at Thursday's summit on Germany, citing sources as saying that Chancellor Angela Merkel blocked work on a specific financial rescue plan.
'Germany is stepping totally on the brakes on financial assistance,' the newspaper quoted a senior EU official as saying. 'On legal grounds and on principle.'
EU President Herman Van Rompuy and Merkel said it was impossible to offer specifics because Greece, saddled with one of the biggest debt burdens in the bloc and hit by soaring borrowing costs, has not asked for EU help.
Financial markets had hoped EU leaders would lay out specific plans to provide Greece with a credit life-line or a scheme in which state-owned European banks would buy Greek bonds in order to help the government finance its borrowing.
But that optimism gave way to disappointment, with market focus now on next week's meeting of EU finance ministers. Analysts are skeptical it will produce definitive results.
'There will still be a lot of questions hanging around,' said Gareth Berry, a currency analyst at UBS in Singapore. 'The EU have no experience of this type of thing. They are not the IMF and they will be very careful not to plunge into this with both feet and not think things through.'
European leaders are keen to prevent Greece's problems from spreading to other highly indebted or high-deficit euro zone members - such as Spain and Portugal - plunging the currency area into a deeper crisis.
But they also want to keep up the pressure on Athens to implement an austerity plan designed to cut hundreds of billions of euros in debt and a deficit that reached 12.7 per cent of gross domestic product last year - more than four times EU limits.
Greece needs to raise about 53 billion euros ($75 billion) this year to finance its budget and refinance its debts, which are expected to grow to 290 billion euros this year, nearly 120 percent of gross domestic product.
Commentators, however, warn that Greece's debt rout may have put the EU in a lose-lose situation.
Leaving the Greeks alone to deal with the legacy of years of excessive borrowing and lax budget discipline could expose its and its southern peers' debt to a punishing sell-off that could rock the entire 16-nation euro area.
A bailout would expose the area's biggest flaw -- its inability to enforce fiscal discipline among its members -- further denting market confidence in the EU's Stability and Growth Pact that sets limits on public debt and fiscal deficits.
Greek Prime Minister George Papandreou on Thursday again promised deficit cuts, starting with a four percentage point reduction this year, and the EU said it will monitor progress.
Even with EU support Greece faces a daunting challenge to consolidate its budget and restore confidence in an economy whose imbalances were exacerbated by the financial crisis and where social unrest remains a threat.-Reuters