EU racing to draft 2nd Greek bailout

Greece’s conservative opposition meanwhile demanded lower taxes as a condition for reaching a political consensus with the Socialist government on further austerity measures, which Brussels says is needed to secure any further assistance.

Moves to plug a looming funding gap for 2012 and 2013 were accelerated after the International Monetary Fund said last week it would withhold the next tranche of aid due on June 29 unless the EU guarantees to meet Athens’ funding needs for next year.

Senior EU officials held unannounced emergency talks with the Greek government over the weekend, an EU source said.

Greece took a 110 billion euros ($158 billion) rescue package from the EU and IMF last May but has since fallen short of its deficit reduction commitments, raising the risk of a default on its 327 billion euro debt -- equivalent to 150 percent of its economic output.

EU officials said a new 65 billion euro package could involve a mixture of collateralised loans from the EU and IMF, and additional revenue measures, with unprecedented intrusive external supervision of Greece’s privatisation program. “It would require collateral for new loans and EU technical assistance EU involvement in the privatisation process,” one senior EU official said. 

Extra funding for Greece faces fierce political resistance from fiscal conservatives and nationalists in key north European creditor countries -- Germany, the Netherlands and Finland -- complicating EU governments' task.

Markets rattled

Mass unemployment and wage and benefit cuts due to the EU/IMF austerity plan have triggered spontaneous youth protests in Greece as well as a series of one-day strikes by powerful trade unions.

Weekend comments by an Irish minister that Dublin too may need a second rescue package may also fuel opposition to further bailouts among lawmakers in Berlin, the Hague and Helsinki. Transport Minister Leo Varadkar told The Sunday Times newspaper that Ireland was unlikely to be able to return to capital markets next year as foreseen in its EU/IMF program. “It would mean a second program (of emergency loans),” he was quoted as saying.

Irish central bank governor Patrick Honohan acknowledged that debt market conditions were worse now than when Ireland took an 85 billion euro bailout last November but said they would improve.

Uncertainty over whether Greece will receive the next 12 billion euro aid tranche required to meet 13.4 billion euros in funding needs in July continued to rattle financial markets.

The European Central Bank maintained a drumbeat of pressure against any attempt by EU politicians to restructure Greece's debt mountain, even by asking investors to accept a voluntary extension of bond maturities.

ECB board member Lorenzo Bini Smaghi recently said, the idea that debt restructuring could be carried out in an orderly way was a “fairytale,” saying it was the equivalent of the death penalty. Euro zone governments are actively studying options for changing the maturities on Greek debt, officials say, although German Finance Minister Wolfgang Schaeuble acknowledged in an interview last week that it was very high risk.

“The Eurogroup is doing research for reprofiling -- what can you do on reprofiling? Is it possible without a credit event?” Dutch Finance Minister Jan Kees De Jager told reporters on Saturday in Cyprus. It’s an investigation, and we have to wait for the outcome of it. EU officials contend that Greece could do much more to help itself by selling off a treasure trove of state assets.

ECB executive board that Athens could raise as much as 300 billion euros from privatising state property.

Greece currently aims to raise 50 billion euros from privatisations by 2015 to help stave off a fiscal meltdown, but the country lacks a proper land registry and ownership of many potentially lucrative assets is legally uncertain.

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