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Greek rescue will derail without rapid reforms: IMF

18 May 2011, 23:50 CET
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(LAGONISSI) - Greece, in a second debt crisis, "will run off track" without rapid extra reforms, a top IMF official warned on Wednesday but the country is torn over the government's promised measures.

"It is essential that there is a significant acceleration of restructuring reforms in the public sector," Poul Thomsen, the deputy European director for the IMF, told an Economist magazine conference at the coastal resort of Lagonissi near Athens.

He warned that without faster reforms, the programme to rescue and restructure the Greek economy, supervised by the European Union and the International Monetary Fund, "will run off track."

The EU and IMF are putting pressure on the government to accelerate privatisations to raise 50 billion euros.

"Privatisations make a real difference," Thomsen said on Wednesday.

"There would be a very substantial change in debt sustainability," he said.

The EU and IMF rescued Greece from imminent default last year with a massive loan which broke new ground for the eurozone. Ireland and Portugal have since been rescued by similar means.

The European Union is now racing to contain another Greek crisis which could unsettle the eurozone, but EU policymakers seem to have a gulf to cross over how to deal with Greek debt.

The Socialist government of George Papandreou has launched a titanic effort to scale back the country's soaring deficit in the hopes of lowering debt which has exploded to 340 billion euros ($483 billion).

But recession has neutralised some of the dividends from the unpopular sacrifices imposed on the Greek workforce in the face of strike and protest waves, leaving Athens widely off its financial targets.

Unions and opposition parties have fought the Socialists every step of the way to prevent a sweeping overhaul of the overstaffed and inefficient Greek public sector which has generated a large share of the country's budget hole.

Sector unions have now pledged to fight against plans by the government to privatise and sell stakes in several state-run entreprises and assets.

Papandreou has repeatedly called for political consensus to help get the country out of the gravest economic crisis in its modern history.

But some of his political opponents have even boycotted talks.

The main opposition conservatives -- in power until 2009 and blamed by many forGreece's predicament -- argue that the economic policies followed by the government lead nowhere.

Antonis Samaras, conservative leader and head of the New Democrat party, speaking at the event Wednesday, ruled out an alliance with the government on reforms, citing government's "failure" to steady the country's economy.

Samaras equally denounced "the clumsy intervention" of Brussels in the internal affairs of Greece.

Each country, he said, is entitled to respect "for its democracy" and "its constitutional order, which are not negotiable."

Disagreement is in evidence in Brussels and Frankfurt too, with the European Union's financial chiefs in apparent discord over how to address the new crisis in Greece.

The head of the eurozone, Luxembourg Prime Minister Jean-Claude Juncker, said on Tuesday that a "soft restructuring" of Greece's debt was possible provided that Athens commits to reforms and the privatisation programme.

But Lorenzo Bini Smaghi, an Italian board member of the European Central Bank, said on Wednesday he opposed the idea.

"I reject a soft restructuring option for Greece," Bini Smaghi said at an event in Milan.

"Soft" debt restructuring is understood as lengthening repayment schedules and easing interest rates.

A so-called "hard" restructuring is considered to mean states writing off a part of their debt, the route followed by Argentina or Mexico among the more notorious defaults in the recent past.

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