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September 20, 2010
EU to extend aid for Greece, reports say
Reports suggest EU officials are considering an extension to financial support for Greece, as analysts increasingly question to country´s ability to stand on its own feet by 2013.
In May the EU and IMF agreed to provide Greece with a three-year €110 billion loan after weeks of spiraling borrowing costs on international capital markets, on condition that the government implements a tough package of economic reforms.
Over the weekend (18-19 September) the Greek Ta Nea newspaper reported that EU officials are considering an extension to the country´s aid package, due to doubts over investor appetite to return to Greek bond purchases.
Despite the introduction of a slew of unpopular tax increases and salary cuts for public sector workers since May, winning both international plaudits and protests on the streets, Greece´s debt to GDP ratio is still expected to reach 150 percent by 2013.
There are also questions marks over the centre-left government´s ability to continue the pace of reforms.
"Senior EU officials believe the Greek government will not be able to apply the hard conditions of the memorandum of understanding [between Athens and its international lenders] within the appointed timeframe," reported the Greek daily.
During a two-day road show of European capitals last week in a bid to win back investors, Greek finance minister George Papaconstantinou vowed that the government would not restructure its debt at any point.
But the recent austerity measures have contributed to the country´s recession, with the economy set to shrink by four percent this year. This in turn has complicated government efforts to cut its deficit from 13.6 percent in 2009 to 8.1 percent of GDP this year.
Concerned that revenue collection remains a major problem in a country traditionally rife with tax evasion, the IMF is set to dispense a team of permanent officials to Athens.
Doubts over a second peripheral eurozone country, Ireland, have also attracted increased media attention in recent days.
Irish finance minister Brian Lenihan told the Sunday Telegraph he rejected speculation that the cost of bailing out the country´s banking system will force the government to turn to an EU-IMF emergency fund, set up in the wake of the Greek deal.
Despite a more solid economy than Greece and a harsh package of austerity measures implemented by the government earlier this year, Ireland´s shaky banking sector has led to growing fears.
In late August, rating agency Standard and Poor´s downgraded the country´s debt rating, while last Friday 10-year bond Irish bond yields moved over six percent, 3.7 percent higher than their German equivalents. Yields earlier this year were under five percent.
That jump was linked to an earlier report by Barclays bank that Dublin could be forced to seek external aid at some point if conditions worsen.
The cost of the country´s banking sector bailout has been estimated at roughly €40 billion by Michael Somers, a former chief executive officer of Ireland´s National Treasury Management Agency.
On Tuesday Dublin with return to the capital markets in a bid to sell €1.5 billion in bonds.