BRUSSELS – Eurozone nations will likely offer Greece more support soon, but any new help will come in exchange for further austerity and reform measures, European officials said Tuesday.
A year after being granted euro110 billion ($158 billion) in rescue loans in return for a radical overhaul of its economy, Greece remains struck in recession and looks unlikely to be able to stand on its own feet again by 2013, when the current bailout program runs out.
To give Greece some breathing space, eurozone nations are debating additional support measures to keep the country from having to default on part of its massive debt — a step that officials warn would rattle banks across Europe and could hurt the continent's recovery.
The finance ministers of the 17 eurozone countries may make a broad announcement on potential new aid measures after their meeting in Brussels on Monday, said an official from a eurozone country.
However, he said it was too early to say how much more money Greece may need, adding that any concrete measures would only be decided after experts from the EU, the European Central Bank and the International Monetary Fund have completed an assessment of Greece's bailout program.
"If there is potential help ... it will of course be attached to new conditions," the official said. "Nothing is free." The official was speaking on condition of anonymity because discussions on new aid were still ongoing.
The EU's Monetary Affairs Commissioner Olli Rehn avoided making a clear statement when asked about a new bailout for Greece, but noted that the debt inspectors in Athens will also examine how much money Greece may need to refinance its debt over the coming years.
Under its bailout program, Greece was supposed to raise some euro27 billion ($39 billion) next year, but at the moment it is essentially locked out of international debt markets, with investors unwilling to lend it any more money.
On Tuesday, credit ratings agency Moody's Investors Service put the B1 rating of the city of Athens on review for a possible downgrade, just like it did the nation of Greece earlier.
Greece's own economy, meanwhile, is not providing it with sufficient revenue.
Preliminary state budget data for the first four months of 2011 showed a deficit of euro7.24 billion, slightly higher than the target of euro6.92 billion. Revenues fell short of the euro16.37 billion target by euro1.28 billion. The figures are not those used to assess Greece's adherence to the bailout conditions, as they are based on slightly different data, but they do provide an indication.
In return for the rescue loans, the Greek government has already cut public sector salaries and pensions, increased taxes, opened up professions to more competition and overhauled the pension system. It also announced a euro50 billion ($73 billion) privatization program.
However, many of the promised reforms have not yet been implemented, with tax evasion still high and concrete details of the privatization program still outstanding, European officials say.
Before approving more aid, other eurozone countries will want to see "major progress" in those areas, said one official.
"The credibility of the EU would be seriously in doubt if we start pouring more (money) into Greece but are seeing nothing in return," the official said. He was speaking on condition of anonymity because of the sensitivity of the topic.
But even with new commitments from Greece, additional aid faces a rough path of approval by the 16 other eurozone states. Finland, which still has to form a government after a euro-skeptic, anti-bailout party won almost 20 percent of the vote in recent elections, is struggling to get a promised bailout for Portugal through parliament. More help for Greece will likely prove even more difficult.
Many economists say, however, that a new bailout — even tied to strict economic reforms — won't be enough to get Greece growing again and that it should instead negotiate a restructuring with its private creditors. That could mean giving the Greek government more time to repay or cutting its overall debt, currently more than euro340 billion ($490 billion), or some 150 percent of economic output.
But opinions diverge significantly on how that could be done without causing major disruption to the European economy. The Greek government and EU politicians insist a restructuring is not on the cards.
"Default or debt restructuring is a dramatic economic and social event for the country which experiences it — I would call it political 'suicide' — which leads many into poverty, as experience has shown," said ECB Executive Board member Lorenzo Bini Smaghi.
Ratings agencies have warned this week that restructuring is becoming an increasing risk. Standard & Poor's said a discount of 50 percent on bond holdings may be required.
For the time being, Athens is resorting to tapping markets only for short-term loans. The government raised euro1.625 billion ($2.34 billion) in 26-week treasury bills Tuesday, at a 4.88 percent interest rate — slightly above the 4.80 percent at a similar auction in April, the Public Debt Management Agency said. The sale was 3.58 times oversubscribed.