Greece inches closer to deal on aid: official

ATHENS Mon Sep 19, 2011 5:05pm EDT

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ATHENS (Reuters) - Greece hopes to clinch a deal with its lenders Tuesday for continued aid funding, an official said, after it pledged to take on as much austerity as needed to avoid a default that could trigger deeper turmoil on already shaky global markets.

EU finance ministers expressed doubt over the weekend that Greece could meet its obligations and the International Monetary Fund warned Athens to implement agreed reforms or miss an 8 billion euro ($11 billion) aid tranche slated for October vital to keeping state finances afloat. [ID:nL5E7KJ1NN]

Greek Finance Minister Evangelos Venizelos said the country would do what was necessary to get the aid but would not allow itself to be a scapegoat for euro zone policymakers who had failed to deal with the region's debt woes.

He held a phone call with members of the so-called "troika" of IMF, European Union, and European Central Bank officials late Monday.

A Greek finance ministry official indicated the two sides had come closer to an agreement but more details were needed from Athens.

"The climate was better than we expected," the official said, on condition of anonymity. "We are close to a deal and we hope to conclude tomorrow. The government will make an announcement most likely Wednesday, after a cabinet meeting."

Earlier in the day, the IMF's representative in Greece, Bob Traa, made clear that patience among Greece's international lenders was running out.

"The ball is in the Greek court. Implementation is of the essence," Traa told an economic conference.

Asked if Greece will get the sixth aid tranche, Traa said: "That's what we are working on ... We are making progress but it would not be correct for me to speculate on this ... I don't have a crystal ball but we are working 24/7 to get it done."

His comments added to pressure for action on promised measures such as further cuts to state salaries and pensions, firing public servants and shutting inefficient state organizations.

IMF inspectors were due to return to Athens this month but decided on Monday's call instead after the euro zone finance ministers failed to get closer to a broader solution to the crisis shocking both the common currency and global markets.

That coincided with the dramatic cancellation of Prime Minister George Papandreou's trip to the United States on Saturday to deal with the issue, which prompted fresh talk of a possible default and snap elections.

Officials have strongly denied both, but the worries caused world stocks to snap a four-day rally and pushed the euro weaker until the finance ministry official's statement helped them to recover some of the losses.

MORE CUTS FOR MORE FUNDS

Greece's Finance Ministry said the call with the troika was "productive and substantive" and talks would resume in another call late Tuesday after experts in Athens studied the data.

Sunday, Venizelos said Greece needed to make major decisions now to avoid bankruptcy and stay in the euro zone.

"It is very crucial that Greece protects itself in such tense conditions. We should not allow ourselves to become the scapegoat or the easy excuse that will be used by European and international institutions in order to hide their inability to manage the crisis," he said.

Speaking on the sidelines of a conference, he expressed confidence Athens would qualify for the October aid tranche.

"We have the will, the determination and the commitment to implement all that is needed to meet our obligations vis-a-vis our partners who are also our lenders," he said.

The minister also said cutting spending would be a priority of the 2012 budget and predicted the economy would shrink at a worse-than-expected pace of 5.5 percent this year.

Greek media published a list of 15 measures Monday they said the troika were asking Athens to take immediately. Finance Ministry officials said the list was compiled internally and included steps agreed with lenders in July.

"The troika does not give us lists. It wants us to meet fiscal targets and asks us to spell out how we will do it," said a government official on condition of anonymity.

CRUNCH TIME

Analysts say it is crunch time for Greece, which must face up to the fact that unless it does what its lenders say, it may be unable to pay next month's salaries and pensions and other state expenses.

"There was a big list in the medium-term fiscal plan but they need to be actually implemented and the deficit has to come down. Otherwise the next tranche could be withheld until the government does it, even after December, so there could be some disorderly default," said Citigroup's Giada Giani.

The measures have met resistance, not only from an austerity weary public taking to the streets but also from labor unions and even from within the ruling Socialist party.

"You are annihilating us," the Greek retail association ESEE told the government in a statement. "You are leading the Greek middle class to full annihilation. Stop now."

ESEE said it would challenge in court a new property tax slapped on households on September 11 through electricity bills to plug a 2 billion euro budget hole this year.

EU officials, who have long warned against one-off taxes that stifle the economy, expressed doubts the tax would rake in the funds targeted in the face of public resistance and asked the government to take other steps, Greek officials said.

"They doubt this tax will raise even 1 billion euros," a government official said. "They want more measures to make sure we get that and a little more to be on the safe side."

(Additional reporting by Renee Maltezou, Lefteris Papadimas; Writing by Dina Kyriakidou and Michael Winfrey; Editing by Louise Ireland and Rosalind Russell)

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