EU and IMF experts arrived today for an audit of Greek finances to determine if the Athens government merits the next slice of rescue funding, the day after its debt was hit with a steep downgrade.
The auditors, arriving amid speculation that Greece is again in deep trouble, will decide if the country is meeting conditions of an EU-IMF three-year rescue package worth €110 billion.
The release of the fifth slice of rescue aid early in June will depend on their findings.
Tension over the parlous state of Greek public finances has risen sharply in the last few days, particularly with the downgrading of Greek debt by Standard and Poor's credit rating agency yesterday. S&P said it was downgrading Greek long-term debt by two notches, deep into junk status, because of increased prospects that the country would have to restructure its debt.
Senior EU and Greek officials have denied that any restructuring is on the agenda. The rescue for Greece, a year ago, was the first of three bail-outs, covering also Ireland and now Portugal, and the renewed strain over the Greek debt mountain is seen as another severe challenge for the credibility of the euro zone.
The ministry said that the team from the EU, ECB and International Monetary Fund was expected to stay here for at least a week. From tomorrow it would meet Greek Finance Minister George Papaconstantinou, Health Minister Andreas Loverdos and Employment Minister Louka Katseli.
At the time of the last such regular audit in February, the experts said that Greece had to accelerate a programme of privatisations, worth €50 billion by 2015, in order to raise cash.
The governor of the central bank in Greece, George Provopoulos, yesterday urged the government to accelerate a programme of privatisations. He said that the programme was an opportunity 'to correct as possible the deviations and delays that actually existed and which gave a footing to negative commentary worldwide'.
Nowotny says he wants more time for Greece
European Central Bank policymaker Ewald Nowotny today said he favoured giving Greece more time to repay its financial aid rather than issuing new loans, and he and another ECB official ruled out a debt restructuring
Nowotny and ECB Executive Board member Lorenzo Bini Smaghi both said a Greek debt restructuring would damage both Greece and other countries in the 17-member euro zone.
'You have to be aware that this would immediately have massive consequences for the Greek banking system and for the banking system overall,' Nowotny told Austrian radio. 'That would only heighten the crisis,' he added.
Nowotny said it was primarily up to Greece to put its financial house in order and that a restructuring must be avoided.
Debt-ridden Greece wants international lenders to ease terms of a €110 billion bail-out and get fresh funding to avoid default, Greek officials said yesterday.
Greece said it was talking with euro zone partners on ways to plug a €27 billion funding hole next year as a new credit rating cut, by S&P, made its return to markets even more difficult.
Given Greece's financing crunch, some eurosceptic members of German Chancellor Angela Merkel's coalition and a senior German economist, Ifo Institute President Hans-Werner Sinn, said at the weekend Greece should be encouraged to abandon the euro.
Bini Smaghi said an exit from the euro by Greece would hurt not just Greece but other countries too. 'I cannot understand the idea on the other hand of making more aid conditional on some kind of debt restructuring of the country receiving aid,' he said.
He said that would produce 'perverse behaviour' allowing part of the debt not to be paid in exchange for more debt.
Another ECB policymaker, Juergen Stark, said the programme Greece agreed a year ago with international lenders in exchange for a bailout was realistic and must be implemented.
'Greece has a high debt level, but Greece is not insolvent,' said Stark, who is also a member of the ECB's Executive Board, which runs the central bank's day to day business.
Nowotny said international aid to Greece was correctly conceived but officials had underestimated the depths of the country's problems and structural shortcomings such as tax collection, which meant the aid programme may not be wrapped up on time.
A meeting of top officials from euro zone countries on May 16 was the proper venue to address the issue, Nowotny said, criticising a meeting by a select group of countries from the bloc last Friday, the existence of which leaked out.
'This May 16 meeting and this group is the one that really decides such things. I think the improvised meeting of last Friday was unfortunate. It had only negative effects. It is important to return to orderly, serious negotiations,' he said.
Greece raises funds despite debt crisis
Greece, in the centre of a storm over its debt, borrowed €1.625 billion for six months today at a slightly increased rate of 4.88%.
At the last similar issue of debt, Greece had to pay a rate of 4.75%. Demand for the latest issue was for more than three times the initial debt on offer, and totalled €4.474 billion. The initial amount was €1.250 billion.
At the last auction on March 8, demand also amounted to three times the amount offered.
