Greece approaches another critical juncture in its debt crisis Friday as the European Union and the International Monetary Fund conclude their review of Greek budget accounting, amid a growing consensus that Athens will need a new loan package that may involve a contribution from private-sector creditors.
Protests Friday continued across the Greek capital as the government prepared its next round of spending cuts and privatization plans, which are likely to lead to further job losses as well as new taxes.
Later Friday, Prime Minister George Papandreou will travel to Luxembourg to meet with the chairman of the group of euro-zone finance ministers, Jean-Claude Juncker, to outline Greece's need for new aid and present the government's latest reform initiatives. The measures are to be presented to the Greek parliament Monday.
The new austerity program will include €6.4 billion ($9.27 billion U.S.) in fresh spending cuts and revenue measures to bring this year's budget back on track with targets.
Another €22 billion in further measures, will aim to cut the deficit below 1% of gross domestic product by 2015. The measures include an accelerated privatization program, welfare reforms and, possibly, deep cuts in public-sector employment.
For the past four weeks, Greece has been holding talks with a visiting delegation of international officials, which is evaluating whether the country has done enough to receive the next tranche of a €110-billion bailout the country received last year as it teetered on the verge of default.
EU, IMF and European Central Bank officials are expected later Friday to issue an assessment of Greece's reform measures to date.
But crucially, the officials will also evaluate Greece's plans for future deficit cuts and its privatization plans over the next five years, which are seen as a precondition for unlocking further aid to the debt-strapped country.
Since receiving its bailout last year, Greece has cut its budget deficit by about a third, to 10.5% of GDP. But it still missed its budget target last year and has dragged its feet on an ambitious, but much-delayed €50-billion privatization program. As a result, the country has failed to win back investor confidence that it can service its giant debt burden.
Faced with still prohibitively high borrowing costs, Greece is now asking for a further €60 billion in aid to cover its financing needs for the next two years.
Euro-zone finance ministry officials met in Vienna until early Thursday morning this week to discuss a new aid package. No final agreement has been reached, although governments appear to be moving toward consensus on key aspects of a package that would need ministerial approval later this month.
One key element is expected to be that private-sector creditors must contribute somehow to Greece's financing needs, a condition that has been sought by Europe's paymaster, Germany, a euro-zone official said.
The officials agreed to study options for getting private creditors to contribute, starting with "moral suasion" being applied to Greek banks for them to roll over their holdings of Greek government debts, the official said.
The official said discussions included the possibility that the private-sector contribution could be combined with a three-year loan package for Greece.
But talk of the new cutbacks in state spending has already stoked opposition in Athens with thousands of self-proclaimed indignant Greeks staging daily protests in front of parliament.
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