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Greece eyes fresh aid, but wary of more austerity

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(Globalpost/GlobalPost)

Stuck in its debt crisis but confident of progress made after two major bailouts, recession-mired Greece is unsure of what an inevitable third package will look like.

Since the beginning of the debt crisis in 2010, Greece has struck two bailout deals with the EU and the International Monetary Fund, worth a total of 240 billion euros ($321 billion) that allowed the indebted country to remain in the eurozone.

Having paid the price with six years of recession and draconian austerity, Greece now still faces a 10-billion-euro financing gap for 2014 and 2015.

Greek Finance Minister Yannis Stournaras acknowledged as much on Sunday, a few days after his German counterpart Wolfgang Schaeuble said the eurozone will have to dig into its pockets once again to help Greece.

Pointing out that "the sums involved (in a third package) will be much smaller than before", Schaeuble, speaking at an election rally in Germany, essentially reiterated an IMF prediction that Greece will need 4.4 billion euros in 2014 and another 6.5 billion in 2015.

Economist Angelos Tsakanikas said that in any case it was to Greece's benefit to delay a return to borrowing on markets where investors would seek a hefty premium from a country still worryingly close to insolvency.

"Greece ... has no interest in going out in the markets since it can benefit from lower rates by its European partners," said Tsakanikas, director of economic research at the Iove foundation.

The Greek government however has said it has not ruled out a return to the markets in the second half of 2014, "something that would definitely be a powerful message politically", he added.

In November, eurozone leaders kept the door open for more rescue loans if the government stood by its commitments.

ECB board member Joerg Asmussen, who visited Athens last week, recalled that decision which states that if Greece achieves primary surplus and carries out structural reforms, including an overhaul of its public sector and its tax system, it will be eligible for further aid.

The prospect of more aid with conditions has enraged Greece's opposition, especially radical leftists Syriza, which on Monday accused the government of seeking to sign "a new programme of austerity measures... a recipe that has caused an explosion of debt and a profound recession".

Syriza warns that public debt in 2013 will be more than 180 percent of the country's GDP, despite the 176 percent rate initially predicted.

The finance minister insists the rise is mostly a result of sums paid to recapitalise Greek banks.

In a Monday interview to German daily Handelsblatt, Stournaras said there were alternatives to loans for financial aid.

These include lowering the interest on existing debt, extending the deadline for repayment or even recapitalising Greek banks with funds from the European bailout fund.

The third option, which would be done retroactively, would require that EU nations take on part of Greece's debt, a controversial solution that divides the country's creditors.

"A new aid package is necessary to fill the 10-billion-euro gap, but it will increase the debt further if it is not accompanied by measures that ease the interest on debt," warns Kostas Melas, professor of economics at Panteion University.

"Primary surplus should be used in real economy" and not to pay off debt, Melas told AFP, stressing that "any new austerity measures would be disastrous".

Adopting austerity would also be a political risk for the already fragile coalition of Prime Minister Antonis Samaras's conservative New Democracy party and socialist Pasok.

Discussing the mistakes in the Greek programme, which underestimated "the particularities of Greece's economic and political reality", liberal daily Kathimerini's editorialist Dimitris Tsiodras on Tuesday deplored that the country's GDP had accumulated more than 20 percent since the crisis began.

"The government should ask its European partners for more decisive forms of support that will not include new (austerity) measures", as "Greece has already paid the price of recession", said the front page of popular daily Ta Nea on Monday.

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http://www.globalpost.com/dispatch/news/afp/130827/greece-eyes-fresh-aid-wary-more-austerity