Greece: No second bailout, no euro

2012-01-03 22:31

Athens - Greece's government warned on Tuesday that the debt-crippled country will have to ditch the euro if it fails to finalise a second, €130bn international bailout.

Spokesperson Pantelis Kapsis said negotiations in the next three or four months with international debt monitors will "determine everything," including whether Greece escapes a disastrous bankruptcy.

Greece is being kept afloat by a first, €110bn  international bailout agreed in May 2010, after investors shocked by the country's huge budget deficit and debt mountain demanded sky-high interest rates to continue buying Greek bonds.

An additional bailout was agreed in October, when it became clear that the first batch of funds would not suffice, but that deal has yet to be finalised.

Sorting out the details of the bailout, which also foresees a €100bn writedown of Greece's privately held debt, is the main task of the coalition government headed by former central banker Lucas Papademos, whose short mandate is expected to expire in early April.

"This famous loan agreement must be signed, otherwise we are outside the markets, out of the euro and things will become much worse," Kapsis told private Skai TV.

In return for its first batch of rescue loans from its European partners and the International Monetary Fund, Greece imposed deeply resented austerity measures to contain its budget deficit - set to hit at least 9% of GDP last year despite repeated spending cuts and tax hikes.

Kapsis said further cutbacks, possibly including new taxes, might be required to address a revenue shortfall,

"We will see what the shortfall is and it is very likely that measures will be required," he said. "I also don't believe it is easy to impose new taxes, but what does cutting spending mean? To close down the public sector?"

"There is no easy solution," Kapsis said.

The details are expected to be determined during talks later this month with debt inspectors from the EU, the European Central bank and the IMF, who will determine whether the country receives its next €89bn loan installment.

"We can't take [approval of the next installment] for granted," Kapsis warned.

Read more on:    greece  |  europe debt crisis

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