IIF calls on EU to slash rates on loans to Greece

(WASHINGTON) - The global banking lobby IIF on Thursday called for the European Union to slash the interest rate on its rescue loans to Greece to give it room to get its economy back to growth.

Saying that further harsh austerity is only making things worse across Europe, the Institute for International Finance said Greece and all of Europe's most troubled economies need relief from tough short-term fiscal targets to get back to growth.

"It is urgent to complete the ongoing review of Greece's program with an extension of the time schedule of budget deficit targets," the IIF said as Athens huddled in talks with its key lenders the European Union, the International Monetary Fund and the European Central Bank.

"The latter can and could be accommodated without additional new financing by lowering interest charges on official credits in line with markedly reduced funding costs."

IIF chief Charles Dallara said the EU could cut the rates on loans to Athens to one percent from around four percent, without losing any money given current ultra-low interest rates.

He pointed out that commercial banks already agreed to write off 53 percent of the face value of 206 billion euros ($268 billion) in commercial loans to the Greek state as part of the second Greek rescue deal early this year.

But he said banks were worried that continued pressure on Greece to meet tough short-term goals on closing its fiscal deficit were miring the economy in recession, making it impossible to implement needed reforms and privatization to get the economy growing.

"The Greek authorities have had a tough time focusing on these measures" because of the tough, growth-crunching debt and fiscal targets set by the EU-ECB-IMF troika, said Dallara.

Over time, Dallara said, Greece certainly needs to further attack its debt and deficit problem.

"But it will not be possible to do that without any growth," he said.

"What we would encourage ... is a greater willingness on the part of the eurozone lenders... to meaningfully reduce the interest rates on the loans that are currently outstanding and to be provided."

"There's no reason why the eurozone continues to charge ... the rates they charge today."

Cutting the rates would speed up Athens' return to creditworthiness, he said.

The IIF also said that Portugal and Ireland, both of which have made progress in their grueling austerity adjustment programs, need some easing of program targets as well to restore and sustain growth.

"The have earned the right to have some wind at their back," Dallara said.