Investors had hoped that two days of talks between Greece and the so-called troika — the International Monetary Fund, the European Central Bank and the European Commission — would lead to a deal allowing the release of the latest installment of loans, which the country needs by mid-October to avoid running out of cash to pay its bills.
It now seems the question of how best to help European economies in crisis will preoccupy finance ministers of the Group of 20 nations, who are due to meet Friday in Washington. There is a sharp divide between those led by Germany, who believe that deep cuts are necessary to bring the debt crisis under control, and those who believe that it is more important to stimulate growth in sagging economies, which will make the debt easier to repay in the long run.
The Greek Finance Ministry issued a statement late Tuesday saying that the second day of conference calls between the finance minister, Evangelos Venizelos, and representatives of the country’s foreign creditors had yielded “satisfactory progress” and that inspectors from the European Commission, European Central Bank and I.M.F. would return to Athens at the beginning of next week.
“Teams of technical experts will continue analyzing data not just to close the budget for 2011 and prepare the budget for 2012 but also for the years 2013 and 2014, that is for the entire duration of the midterm economic program,” the statement said, referring to a raft of austerity measures voted through Greece’s Parliament in June during violent public protests.
The Greek press published a list of 15 austerity measures that the troika was said to be demanding of the Socialist government. They included laying off an additional 20,000 state workers, cutting or freezing state salaries and pensions, increasing the heating-oil tax, shutting down money-losing state organizations, cutting health spending and speeding up privatizations.
Meanwhile, the Italian government reacted angrily Tuesday to the downgrade of its debt by the credit rating agency Standard Poor’s, describing the move as out of touch with reality.
Late Monday, S. P. cut Italy’s rating by one notch to A from A+, keeping it an investment grade but citing the country’s weakening economic growth prospects and higher-than-expected levels of government debt.
The agency said Italy’s fragile governing coalition and policy differences in Parliament would continue to limit the government’s ability to respond decisively to economic headwinds. It also cast doubt on whether the projected 60 billion euros, or $82 billion, in fiscal savings would be realized because growth prospects are weakening, the budgetary savings rely on revenue increases, and market interest rates are anticipated to rise.
Italy is the third-largest economy in the euro zone, behind Germany and France, and is considered to be too big to save should it run into the same kind of trouble that gripped Greece, Portugal and Ireland.
Although Italy’s budget deficit is relatively low, the big concern among investors is that Italy, whose debts stand at 120 percent of its gross domestic product, will find it increasingly costly to borrow.
Prime Minister Silvio Berlusconi’s office issued a statement Tuesday noting that his government had a solid majority in Parliament. It said the government was preparing steps to lift growth and recently passed measures to control public finances through tax increases and spending cuts.
“The evaluations of Standard Poor’s seem dictated more by behind-the-scenes reports in newspapers than reality and seems influenced by political considerations,” the statement said.
The yield on Italian 10-year bonds rose slightly Tuesday. At nearly 5.7 percent, Italy’s borrowing costs are more than three times what Germany, the euro zone anchor, pays.
Niki Kitsantonis, Elisabetta Povoledo and Nicholas Kulish contributed reporting.
Article source: http://www.nytimes.com/2011/09/21/business/global/greek-rescue-talks-end-with-progress-reported.html?partner=rss&emc=rss