ATHENS, Greece – Debt-saddled Greece moved closer Tuesday to getting the vital bailout funds it needs to avoid a disastrous default after persuading international creditors to return to Athens and resume reviewing its austerity program.
The euro jumped on the news, trading up 0.7 percent at $1.370. The common currency and global stocks had been up for most of the day amid growing expectations that Greece will get the next euro8 billion ($11 billion) batch of aid money. Without the money, the country would default on its debts within weeks, a major blow to the European banking scene and wider economy.
The decision to resume the review early next week implies that Finance Minister Evangelos Venizelos convinced officials from the European Commission, the European Central Bank and the International Monetary Fund that Greece will be able to cut its budget deficit in line with promises made last year in return for euro110 billion ($150 billion) in rescue loans.
"Good progress was made, and technical discussions will continue in Athens over the coming days," a Commission statement said after a two-hour conference call between the so-called troika and Venizelos. "The full mission is now expected to come back to Athens early next week to resume the review, including policy discussions."
A Commission spokesman declined to say whether Venizelos offered new cuts or taxes beyond what has already been announced. The Greek finance ministry said technical experts were still finalizing spending plans for 2011 and 2012 and that talks would resume at the annual IMF meeting in Washington this weekend.
Prime Minister George Papandreou will chair a Greek ministerial meeting Wednesday that is expected to focus on the outcome of the teleconference.
The troika's assessment of Greece's efforts to cut spending, privatize state assets and reform its struggling economy is key to eurozone finance ministers' decision on whether to transfer the next aid installment at their meeting in early October. The money had originally been expected in September, but the troika left Athens earlier this month amid disagreements over whether Greece was fulfilling its promises.
Without the aid money, Greece's cash reserves will run out around mid-October, forcing it to stop paying public-sector salaries and eventually default on its debt. A default could plunge Europe's banking system into turmoil and potentially push Europe and other parts of the world back into recession.
Greece has been depending on rescue loans from other eurozone countries and the IMF since May 2010, when its borrowing costs went through the roof following revelations Athens had been underreporting data on an alarmingly bloated budget deficit and public debt.
In July, eurozone leaders agreed on a second, euro109 billion bailout supposed to keep the country afloat until mid-2014, when they realized that the first rescue package would not be enough. However, eurozone countries are still haggling over details of the plan and the talks with banks, which are also supposed to contribute, have not yet concluded.
Most analysts still think Greece will have to restructure its debts at some point, especially if its economy remains mired in recession. Fitch Ratings said in a report Tuesday that it expected Greece to eventually default, but to do so while remaining in the eurozone.
Some experts believe the country may even have to drop out of the 17-nation euro, a notion Venizelos dismissed earlier Tuesday.
"Greece's participation in the eurozone and the euro is an irrevocable and fundamental national choice that the Greek population is making sacrifices to safeguard, in full knowledge of how priceless it is," Venizelos said, rejecting a Greek newspaper report that the government was considering a referendum on the issue.
The Socialist government has already taken a series of highly unpopular austerity measures over the past 20 months, cutting public sector pay and pensions and hiking taxes and retirement ages. Unions have responded with strikes and demonstrations.
Earlier Tuesday, hundreds of civil servants demonstrated peacefully in central Athens, while about 250 high school students marched in a separate protest against shortages in schoolbooks and other supplies at state-run schools. Public transport workers have called for a daylong strike Thursday, while air traffic controllers have declared a 24-hour strike Sunday and a four-hour work stoppage on Sept. 28.