Greek bailout extension depends on debt report

NEWYou can now listen to Fox News articles!

Greece's premier embarked Wednesday on a diplomatic push to earn his debt-crippled nation more time to complete reforms and retain access to bailout loans, but a top European official said that any decision will depend on a report by international debt inspectors next month.

Jean-Claude Juncker, who chairs meetings of eurozone finance ministers and is also Luxembourg's prime minister, insisted Greece must remain within the euro. Its exit from the currency used by 17 European Union countries would hurt both to the country and the wider continent.

"I'm totally opposed to the exit of Greece from the euro area," he said after a meeting in Athens with Greek Prime Minister Antonis Samaras and Finance Minister Yannis Stournaras.

The meeting is the first of several Samaras will hold this week with European leaders to press the case for granting Athens more time to complete its reforms. He will be in Berlin on Friday to speak with German Chancellor Angela Merkel and in Paris on Saturday with French President Francois Hollande.

Since a series of rating downgrades reduced its government bonds to junk status, Greece has been unable to borrow from international markets to finance its high budget deficits. The country is now dependent on two international rescue loan packages from other eurozone countries and the International Monetary Fund, which are preventing it from bankruptcy and potentially having to leave the euro.

In return, it has had to impose strict austerity measures, including cuts to salaries and pensions and repeated tax hikes. The cutbacks deepened a recession that is expected at the end of the year to reach a cumulative 20 percent since 2008, amid galloping unemployment that is now over 23 percent.

But Athens has faltered in the speed and effectiveness with which it has implemented the reforms, fuelling impatience by its creditors, notably Germany, which is the single largest contributor to the bailout.

"The truth is that Greece ... is suffering from a kind of credibility crisis," Juncker said.

The inspectors from the European Commission, European Central Bank and IMF, known as the troika, are due to return to Athens next month to review Athens' progress on implementing reforms.

In an appeal to German public opinion, Samaras told the popular mass-circulation Bild that his country needs more time to effectively implement reforms, but that this would not translate into needing more funds.

"Let me be very clear: we are not asking for extra money," Samaras was quoted as telling Bild. "We stand by our commitments and the implementation of all requirements. But we must encourage growth, because that reduces the financing gaps."

"All we want is a little 'air to breathe' to get the economy going and increase state income," Samaras added, without specifying any timeframe. "More time does not automatically mean more money."

Juncker said that any lengthening of the adjustment period "will depend on the finding of the troika mission."

Hinging on a favorable report from the troika is a massive €31.5 billion ($39.2 billion) bailout installment, without which Greece faces a chaotic default on its vast debts and a possible exit from the euro. A Greek exit would destabilize markets and economies around the world as other vulnerable countries in the eurozone are caught up in investor panic.

Juncker said it's now up to Greece, and Athens must redouble efforts to reduce its budget deficit, reform the public sector, accelerate a stumbling privatization process and open protected professions to competition.

"In fact this is the last chance, and Greek citizens have to know this," he said.

Juncker said Greece's fiscal efforts "have to be credible, they have to be identifiable and they have to be as strong as possible." He added, however, that a demanded new austerity drive aiming to save at least €11.5 billion ($14.3 billion) in 2013 and 2014 must not further aggravate the suffering of ordinary Greeks.

The new measures are expected to include further pension cuts, reductions in broader public sector salaries and the placement of thousands of civil servants in a "labor reserve," where they will draw reduced pay for a few years until retirement.

Samaras' two-month-old coalition government has promised to fully identify these cutbacks within the next couple of weeks, before the next troika inspection.


Geir Moulson in Berlin contributed to this report.