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Timothy Geithner: act swiftly!

25 April 2010 / 19:04:57  GRReporter
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While in Athens even during the weekend continue the intensive negotiations of the representatives of the International Monetary Fund, the European Commission and European Central Bank with the Greek government in Washington, Finance Minister George Papakonstantinou exchanged thoughts with the world business elite. The details of the rescue plan for the Greek economy, which is no longer able alone to repay its debts were discussed at his meeting with Executive Director of the IMF Dominique Strauss-Kahn, with the ECB President Jean-Claude Trichet and European Commissioner for Financial Affairs Oli Rehn. Today Minister Papakonstantinou will have another meeting, this time in private with Dominique Strauss-Kahn.

Greek finance minister also met with his U.S. colleague, Timothy Geithner who urged the Greek government, the IMF and the Commission to act swiftly to find a solution out of the crisis. Activation of the package of financial aid for Greece could start in the first 10 days of May, it will take the form of loans that may reach 45 billion euro for 2010. The package will be activated as soon as the ECB and the IMF reached an agreement with the Greek government regarding the economic reforms.

Envoys from Washington, Brussels and Frankfurt in the Greek capital insist on greater cuts in the public sector, where only the cut of the 13th and 14th salary of civil servants is not enough. Experts in the rehabilitation of troubled economies want the termination of all temporary labor contracts in the public sector, privatization or closure of unprofitable state enterprises as well as rejection of branch labor contracts and complete freedom for dismissal. IMF experts are adamant that pension reform can not be launched in 2018 as planned by the Greek government, but it must be launched immediately or in 2011 at the latest, and individual pensions should be formed according to pension contributions, which the pensioner made during his working live.

Restrictions are also expected in the private sector, where the IMF mission insists for 30% reduction in Christmas and Easter bonuses, as well as a total liberalization of the labor market and the opening of the so-called closed professions.

While in Washington and in Athens the negotiations are in full force the situation in Berlin as well is no any more calm. German government is in a difficult situation on the one hand is pressed by Brussels to grant the largest share of financial aid for Greece and the other to face huge disapproval of such aid from their own voters. In an interview with DPA Minister of Economy of Germany Rainer Briderle said the decision to grant aid will be taken at the earliest after 10 days, after the Greek government submitted a renewed program for economic reforms for 2011 and 2012, which is approved by IMF. "Greece must rehabilitate its public finances and therefore the implementation of the program for stability will be monitored closely. If any deviation fromis observed it the financial assistance will also be suspended," said Finance Minister Wolfgang Schäuble in an interview with Focus magazine. He added that if they achieve the objectives of the program, Greece will very quickly return to the markets and aid will be worth nothing to Germany taxpayer.

However, international analysts are less optimistic about the outcome of the Greek economic crisis. They warn that low economic growth, together with high interest rates for crediting of the public sector will lead to an increase in debt as a percentage of the GDP. Expectations of the Bank of Greece, are that in 2010 GDP will shrink by a further 2 per cent, growth to remain negative in 2011 and in 2012 it will slowly begin to move up. Spread-index will not be reduced significantly and will retain at about 300 base units in the late 2010. So the debt, which in 2009 was 115.3 percent of GDP in 2013 will reach 130 percent of GDP. If Eurostat again reassess the deficit, the debt may reach up to 137 per cent.

Analysts also recall that in the next three years is the maturing in Greek bonds worth 150 billion euros. The aid which Greece will receive from the EU and the IMF will not be more than 80 billion euros. This means that the country will have to cover the difference on its own. How will it succeed in doing this at this stage is not at all certain.

Tags: IMF Germany Greek economic crisis markets
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