Greece agrees €6.4 billion in budget steps - source
Greece has agreed to €6.4 billion in new measures to cut its 2011 budget deficit and aims to wrap up bailout talks with international inspectors by Friday, a senior government official told Reuters today.
Prime Minister George Papandreou would present the main points of the government's medium-term budget plan when he meets Jean-Claude Juncker, the chairman of euro zone finance ministers, in Luxembourg tomorrow, the official said.
The 'troika' team from the European Union, IMF and European Central Bank, has been in Athens since early May negotiating two main points - whether the government has qualified for a fifth slice of funding under an existing €110 billion rescue deal, and the sustainability of Greece's €340 billion debt.
'Negotiations with the troika are likely to conclude late on Thursday or Friday. We are at a stage where the troika is asking for details on various issues,' said the official, who did not want to be named.
'The prime minister will present the main points of the mid-term plan to Juncker, which include speedier privatisations and new measures to cut government spending and raise revenues,' the official said.
The medium-term budget plan included tax increases and lower income tax exemptions, he said, expressing optimism that Greece would now receive the latest tranche of aid in time.
'The discussion on additional measures of €6.4 billion for 2011 has been concluded, the resources have been found,' he said. 'The measures include lowering the income tax exemption, terminating other exemptions and possibly taxes on soft drinks and natural gas,' he added.
Government spokesman George Petalotis said talks on the medium-term plan had been largely completed but technical details remained and confirmed that Papandreou would present it to Juncker tomorrow.
Juncker chairs the Eurogroup which must decide whether to release the €12 billion tranche this month to cover immediate funding needs of €13.7 billion - an issue which hangs on whether Athens has met budget deficit cutting targets.
Athens needs the money not only to cover day-to-day bills but also repay maturing debt and avoid a default which could provoke a new crisis at European banks which hold Greek bonds.
Juncker said in Germany that he hoped a conclusion with Greece could be reached before the end of June. Other sources close to the talks said the troika planned to issue a statement tomorrow on Greece's progress in cutting its budget deficit, but it will not say if Athens should get aid beyond the current bailout deal.
Greece's original bail-out, agreed a year ago, assumes that the government can resume borrowing on financial markets in 2012.
But credit ratings agency Moody's Investors Service knocked a final nail into the coffin of that idea last night, slashing Greece's credit rating by three notches to the same level as Cuba.
Moody's now rates Greece at the same level where Argentina was in July 2001, a few months before Buenos Aires said it would default on its debt. Based on historical experience, borrowers on the Caa1 rating have a 50% chance of default.
With no prospect of returning to the markets next year, Athens will need a second bailout to help cover the funding shortfall in 2012 and beyond. But one source close to the talks said the troika text, concluding the inspection visit, would not cover this.
Moody's slashes Greece ratings
Moody's said the downgrade reflected the 'increased risk that Greece will fail to stabilise its debt position without a debt restructuring' and that its private sector creditors would have to take some of the pain as a result. It put the odds of a debt default at evens.
However, it said that it believed current talks between Greece, the EU, International Monetary Fund and European Central Bank would 'result in further official support and the announcement of additional austerity and structural reform measures'.
A ratings downgrade usually makes it more difficult for the affected country to raise fresh funds, complicating its problems, as investors demand ever higher rates of return to hand over fresh money. Any C-rating is deemed to be high risk and near default.
In March, Moody's cut its Greek credit ratings by three notches from Ba1 to B1 and warned that they could be downgraded further given the risks to the country's stabilisation efforts.
Since then, Athens has struggled to implement additional austerity measures under the terms of a May 2010 €110 billion bail-out accord amid increasing doubts that it can balance its books without additional aid.
Moody's said last night that 'the first trigger for the downgrade is the view that Greece is increasingly likely to fail to stabilise its debt ratios within the timeframe set by previously announced fiscal consolidation plans.'
Accordingly, Greece will not likely to be able to return to the money markets as planned in 2012 'and will require additional financial assistance from the Troika in order to avoid a default,' it added.
