Debt-strapped Greece will likely get more time to repay the bailout loans that saved it from defaulting, a top EU official indicated Thursday as the union seeks to keep its government debt crisis from mushrooming.
There are fears Greece will be unable to cope with a spike in debt repayments in 2014 and 2015 as it pays back loans from the three-year EU and International Monetary Fund program that ends in 2013.
The European Commission is following EU governments in considering extending the amount of time Greece has to repay its debts to match the roughly 7 1/2 years that Ireland has for its bailout.
"We stand ready to make the concrete proposal early next year, and I'm certain that it will receive the support of EU finance ministers," EU monetary affairs commissioner Olli Rehn told reporters after meeting with Greek Finance Minister George Papaconstantinou.
The move comes as EU officials make efforts to ease the pressure in debt markets that forced Ireland's rescue last week and threatened to engulf Portugal as well as larger economies like Spain and Italy. While the EU has resisted further big moves, such as boosting its bailout fund or creating European bonds to share the debt burden, it has focused on austerity plans and making bailout repayment terms more flexible.
Fears of default pushed bond yields for troubled countries so high they face being unable to borrow at affordable rates and roll over expiring debt.
The details of how Greece's repayment extension would work have not been decided.
On Tuesday, IMF managing director Dominique Strauss-Kahn said he supported the extension without imposing additional demands for economic austerity.
The government's austerity measures to qualify for the bailout loans have led to a backlash from labor unions, who say they are causing ever increasing hardship.
Unions have staged a series of strikes and demonstrations, with thousands of Communist-backed protesters marching through central Athens Thursday night to protest plans to loosen collective wage agreements — part of the government's efforts to make the economy more competitive. Greece's seventh nationwide general strike this year has been called for Dec. 15.
The country's statistics agency said Thursday that unemployment in September rose to 12.6 percent from 12.2 percent the previous month. The figure in Sept. 2009 stood at 9.1 percent.
Rehn said he didn't believe Greece would need to ask for a new bailout loan from the EU after the current one runs out.
Instead, the Commission was "in favor of a prolongation of the repayment period of the loans ... in order to avoid the big hump of refinancing" in 2014 and 2015, Rehn said.
Rehn said that turbulence in financial markets continued even though economic recovery had begun in the eurozone.
"The current market turbulence has increasingly systemic features and therefore there is a need for a comprehensive systemic response that combines both European and national efforts which are indeed going on for the moment," he added. "We are all in the same boat in Europe ... and therefore we all need to work together."
That echoes a call by IMF chief Dominique Strauss-Kahn earlier this week for a "comprehensive solution," but Germany and France — Europe's twin economic engines — resist any more big commitments. Both are against increasing the bailout fund from euro750 billion and the creation of European bonds.
Fitch Ratings on Thursday said that while the eurozone's credit strength was better than markets were indicating, the "dramatic deterioration" in borrowing conditions may mean leaders will in fact have to do more, such as increase the size of their bailout fund or have the European Central Bank step up its purchases of government bonds.
But Fitch said it doesn't expect the crisis to lead to the breakup of the euro.
Rehn expressed "sincere admiration" at the progress of Greek financial reforms, which have included overhauling the pension system, cutting civil service salaries, trimming pensions and increasing consumer taxes.
Greece must lower its budget deficit from the 15.4 percent of gross domestic product it stood at in 2009, to below the eurozone limit of 3 percent of GDP by 2014. Its finances are under strict supervision by the IMF and EU, and the quarterly disbursement of bailout loans depends on Athens meeting financial targets.
- government debt crisis
- financial markets
- International Monetary Fund program
- Greek Finance Minister George Papaconstantinou
- Dominique Strauss-Kahn
- Fitch Ratings