Greece optimistic about billions in emergency loans to help Athens make large repayment in May

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Greece confident of landing billions in new loans

WASHINGTON — A key Greek economic official expressed confidence Sunday that his country will be able to secure billions of dollars in emergency loans from European countries and the International Monetary Fund to avoid a crippling debt default.

Greek Finance Minister George Papaconstantinou also had a blunt message for market speculators betting against Greece: “They will lose their shirts.”

Papaconstantinou called a “red herring” market speculation that Greece may still have to default on some of its debt, forcing investors to accept less than full repayment on the Greek bonds they are holding. He said any such restructuring of Greek debt was “off the table.”

His comments capped a difficult week in which Greece was forced to formally request assistance on Friday from other European nations and the International Monetary Fund after months of saying it would be able to weather its debt crisis using its own resources.

In a nationally televised address announcing the decision to request aid, Greek Prime Minister George Papandreo described his country’s economy as a “sinking ship” with soaring government budget deficits that Greece could no longer finance without outside help.

To tide it over, Greece is hoping to obtain emergency loans of about $40 billion from the group of 16 European countries which, like Greece, use the euro as a common currency, and an additional $13.4 billion from the IMF.

The Greek government has already agreed to put in place painful austerity measures to trim government spending and public pensions, but it was likely that the IMF and the euro-zone governments will require even tougher measures in returns for assistance.

German Finance Minister Wolfgang Schaeuble told the weekly Bild am Sonntag in an interview published Sunday that Germany has not yet decided whether to support Greece’s loan request, indicating Europe’s largest economy may demand further austerity measures before agreeing to the loans.

Asked about those comments, Papaconstantinou said in his Washington news conference that he had no doubt that at the end of the negotiations, Greece will win the loans it needs from both the European countries and the IMF.

“We are all confident that this will be done in time and we will continue to be able to finance Greek public debt without absolutely any problem,” Papaconstaninou told reporters.

The IMF’s managing director, Dominique Strauss-Kahn, expressed similar optimism, saying the IMF and European government recognized the “need for speed” because of Greece’s escalating problems and the adverse impact they were having on financial markets around the world.

“We are all aware of the seriousness of the situation and the courageous efforts being made by the Greek people,” Strauss-Kahn said in a statement.

Papaconstantinou told reporters that he expected the IMF board would approve its portion of the loan support within the first 10 days of May and that approval would be in time to meet a large payment of $11.3 billion on Greek bonds coming due on May 19.

He said that he expected the support from the IMF and the European governments to be provided at the same time but he said if some European parliaments were delayed in approving their contributions, the IMF support could be used to obtain bridge financing from other sources.

Greece’s debt crisis weighed heavily on financial leaders as they wrapped up a series of financial meetings that began Friday with discussions among the Group of 20 major economic nations, including wealthy industrial countries and rising economic powers such as China, India, Brazil and South Korea.

In response to the global economic crisis that struck in 2008, the G-20 has been designated the key forum for economic coordination among countries, taking over a role that had been performed for three decades by the Group of Seven richest countries.

In response to the rising clout of such nations as China, the World Bank on Sunday approved a realignment of its voting shares, which boosted China into the No. 3 spot behind the United States and Japan. The change put China ahead of traditional economic powers Germany, France and Britain in a dramatic sign of China’s new status as the world’s third largest economy. The change also increased the voting power of developing nations from 44 percent of total votes to 47 percent.

Besides the change in voting shares, the World Bank also approved a $3.5 billion increase in capital that will allow it to make more loans for infrastructure needs in developing countries. The United States’ share of the increase, which the Obama administration will have to get approved by Congress, would amount to about $117 million per year over five years.

World Bank President Robert Zoellick called all the changes a “historic package of reforms” that underscored a rapidly changing global economy.

The World Bank effort to boost the influence of developing countries in the bank’s operations was a key goal set forth by G-20 leaders including President Barack Obama at a summit in Pittsburgh last September. The World Bank action was expected to set a precedent for upcoming changes at the IMF.

The finance leaders were less successful in getting agreement on the overhauls that are needed to fix flaws in financial regulation that were exposed by the 2008 financial crisis.

Recommendations on increases in minimum capital requirements and tighter control over trading in complex financial instruments such as derivatives and possible bank taxes to make sure taxpayers don’t get stuck bailing out large banks will be presented to the G-20 leaders when they hold their next summit in Toronto in late June.

On the Net:

International Monetary Fund: www.imf.org

World Bank: www.worldbank.org/