ATHENS, Greece — Seeking to prevent a potentially disastrous default next month, Greece is to hold a second round of negotiations with international creditors late Tuesday to secure a crucial installment of bailout loans.
Finance Minister Evangelos Venizelos will aim to convince officials from the European Commission, International Monetary Fund and European Central Bank, collectively known as the troika, in a teleconference that the country is doing what it can to meet strict budget targets promised in return for the rescue funds.
Markets are fairly hopeful that Greece will do enough to receive the funds and avoid a default that could plunge Europe’s banking system into turmoil. Stocks across Europe and the euro were trading higher, brushing aside the latest downgrade of Italy’s credit rating downgrade from Standard & Poor’s.
Although there is a growing expectation that Greece will do enough to get the (euro) 8 billion ($10.9 billion) it needs to avoid a default next month, most analysts think the country will have to restructure its debts sometime down the line, especially if the economy remains mired in recession.
Fitch Ratings said in a report Tuesday that it still expected Greece to eventually default, but to do so while remaining in the eurozone.
“The failure to deal decisively with Greece continues to erode confidence in the capacity of European institutions and policymakers to manage the broader crisis,” it said, adding that as reflected in its ratings, “Fitch expects Greece to default but not to leave the eurozone.”
Since May 2010, Greece has been dependent on a (euro) 110 billion ($150 billion) bailout from other eurozone countries and the IMF to continue servicing its debt and to pay salaries and pensions. Without the next installment, the country only has enough funds to see it through mid-October.
The funds had been expected in September, but the country’s creditors have said a decision on whether to disburse the funds will not be made until early October.
A first teleconference between Venizelos and the troika Monday night was “productive and substantive,” the Finance Ministry said. Technical teams from the three bodies were working on details Tuesday morning, ahead of the second call Tuesday night.
Inspectors from the IMF, ECB and Commission suspended their quarterly review of the country’s progress on meeting its pledges earlier this month, amid talk of missed targets and delayed implementation of reforms.
The government hurriedly announced an extra property tax — to be levied in 2011 and 2012 and charged through electricity bills to make it easier to collect. But the news was greeted with an outcry from a public already reeling from salary cuts and the recession. State electricity company unionists have threatened to refuse to collect the taxes through the bills, and to prevent those who don’t pay having their power supply cut off.
The Socialist government has already taken a series of austerity measures, cutting public sector pay and pensions, and issuing a series of tax hikes. The measures have led to a backlash from unions, who have responded with strikes and demonstrations.
Hundreds of civil servants demonstrated peacefully in central Athens, while about 250 high school students also marched in a separate protest against shortages in schoolbooks and other supplies at state-run schools. Public transport workers have called for a daylong strike on Thursday, while air traffic controllers have declared a 24-hour strike for Sunday, and a four-hour work stoppage on Sept. 28.
But efforts so far have proved to be not enough to tackle the country’s severe debt crisis, which has roiled the euro and threatened other eurozone countries. In July, European countries agreed to extend a second bailout, worth (euro) 109 billion, to Greece. However, the details of the second rescue package, which includes voluntary bond rollovers, have still to be worked out.
On Monday, the IMF representative in Greece, Bob Traa, urged the government to speed up structural reforms and avoid further emergency taxes, saying Greece needed to speed up its reforms in tax collection and reduce the size of the overmanned public sector.
Ahead of Tuesday’s teleconference, Venizelos was to attend a parliamentary committee meeting, at which the director of Greece’s Statistical Authority has been summoned to testify after a member of the outgoing agency’s board claimed budget deficit figures in 2009 were miscalculated, inflating the annual figure. A judicial investigation has been launched into the claims.
The European Commission’s representative office in Athens, however, issued a statement saying the EU’s statistics agency, Eurostat, had published the reviewed Greek 2009 deficit figures “without reservations” last November.
“This is an indication of the great progress (the Greek statistics agency) has made in its credibility,” it said.
Separately, Athens raised (euro) 1.625 billion ($2.22 billion) in an auction of 13-week treasury bills, at a yield of 4.56 percent, marginally higher than the 4.50 percent of a similar auction on Aug. 16. Demand was marginally down, with the sale 2.84 times oversubscribed compared with 2.95 times in August.