Greece in grip of new political talks on debt crisis

ATHENS, May 27, 2011 (AFP) - Greece was in the throes of emergency talks on tough new economic reforms on Friday under the gun of a new IMF debt warning and a looming risk of bankruptcy.

Prime Minister George Papandreou was heading into the critical talks with political parties, called by Greek President Carolos Papoulias as the IMF seems likely to withhold a vital instalment of rescue money.

Greek media comment pleaded for consensus.

Meanwhile the European Union is divided over containing debt strains in the eurozone, mainly because of the Greek crisis, the second in 12 months.

International Monetary Fund spokeswoman Caroline Atkinson warned late on Thursday that the fund needed "assurances" on how Greece will pay its bills.

The IMF had to have 12-month visibility that it would get its money back, she said. This was a condition of continuing to provide its share of a 110-billion-euro ($156-billion) loan mainly backed by EU nations.

"Our Executive Board does not ever let us lend when we don't have an assurance ... when we haven't assured ourselves that there will be no gap," she told reporters in Washington.

Atkinson stressed that the IMF's total 30-billion-euro loan package for Greece depended on the country being able to obtain financing from other sources and operations.

A quarterly audit of Greek finances by the IMF, EU and European Central Bank is heading into an unprecedented fourth week and has yet to approve the release of a fifth loan instalment worth 12 billion euros. They are concerned that Greece has fallen behind its promised programme of reforms.

"For sure, the ongoing mission of the troika in Athens looks set to undergo increasing pressure for a quicker assessment of the Greek package. Euro/dollar volatility is here to stay," ING analyst Paolo Pizzoli said in a note.

Greece will "most likely" go bankrupt without this money, Prime Minister George Papandreou admitted in a Sunday interview.

Greece needs the loan this month and the government has warned that its reserves run out in July.

"No wages, pensions or state obligations will be paid out (without this money)," Finance Minister George Papaconstantinou told Skai television on Monday.

Papandreou already tried and failed earlier this week to persuade his political opponents of the necessity of the new austerity measures, which include another hefty tax cut.

But Greek newpapers on Friday insisted the situation is critical.

"It's time to get serious," said liberal Kathimerini daily in an editorial addressed to the political parties.

"If you make the mistake of coming out without a consensus...the responsibility for the collapse will mainly fall on the prime minister but also on all the representatives of the bankrupted political system," it said.

And Ethnos daily argued that the prime minister and the head of the opposition "face what is probably the greatest challenge of their political careers", urging them to "go the extra mile" to reach agreement.

Reports here say Papandreou could reshuffle his cabinet and add technocrats to help reach a consensus.

Warning bells on Greece's dire economic straits have also sounded in the European Union.

Last week the ECB, which is providing funds constantly to keep the Greek banking system afloat with liquidity, warned that if existing Greek debt is restructured in any way, it may stop this lifeline.

On Thursday, Luxembourg Prime Minister Jean-Claude Juncker, who heads the eurozone finance ministers, also warned that the IMF may block the next instalment of the joint rescue money.

"There are specific IMF rules and one of those rules says that the IMF can only take action when the refinancing guarantee is given over 12 months," Juncker told a conference in Luxembourg.

The government is pressing for a controversial privatisation programme to raise 50 billion euros. This, and other measures, has angered unions which are preparing to hold a third general strike this year.

Many voices in financial markets have warned that the Greek crisis, the second in 12 months, could send shock waves through the eurozone, and mainly through Ireland and Greece, particularly if existing Greek debt were restructured.

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