IMF Role in Greek Rescue Gains Support Among European Chiefs


European leaders showed signs of bowing to German demands for an International Monetary Fund role in any rescue of debt-stricken Greece, seeking to prevent the fiscal crisis from undermining the euro.

Asserting her clout as head of the European Union’s largest economy, German Chancellor Angela Merkel ruled out an aid decision at today’s EU summit in Brussels, pushed for the IMF to be brought in, and called for measures to stop deficit trickery.”

There will be a mix between IMF instruments and bilateral loans,” Luxembourg Prime Minister Jean-Claude Juncker, who heads the panel of euro-region finance chiefs, told reporters in Brussels. But Greece will not need this instrument because the Greek budget program is very credible and markets will eventually see that.”

Signs that Greece may win a financial backstop gave a lift to Greek bonds and nudged the euro up from a 10-month low. The European Central Bank contributed to the rally by announcing a policy reversal ensuring that Greek debt won’t be struck off its collateral list next year.

Greece needs to sell about 10 billion euros ($13 billion) of bonds in coming weeks. About 8.2 billion euros of debt matures April 20 and 8.5 billion euros on May 19, with about 3.9 billion euros of bills maturing in April and May.

Goldman Sachs Group Inc. estimates that Greece may ultimately get aid from the IMF worth about 20 billion euros over 18 months, according to an e-mailed note today.

The gain in Greek bonds sent the 10-year yield down 3 basis points to 6.33 percent, 321 basis points above comparable German debt. That extra borrowing cost has risen from 273 basis points on Feb. 11 when the EU vowed determined and coordinated action” to stanch the crisis.

The Greek government is counting on wage cuts and tax increases to shave the deficit to 8.7 percent of gross domestic product this year from 12.7 percent in 2009, the highest in the euro’s 11-year history.

The summit begins at 5 p.m., though at the last meeting on Feb. 11 a political declaration to back up Greece was made before the official start.


TradingEconomics.com, Bloomberg
3/25/2010 11:07:02 AM