August 7, 2012 / 2:05 PM / 5 years ago

UPDATE 2-Greece to issue T-bills to pay maturing bond-source

* ECB-held 3.2 bln euro bond matures Aug. 20

* Greece to issue more T-bills to pay bond

* Greek leaders resume work on austerity cuts

By George Georgiopoulos

ATHENS, Aug 7 (Reuters) - Greece will issue additional T-bills to pay a government bond that matures later this month and avoid default while it awaits a delayed tranche of aid, a government official said on Tuesday.

Cash-strapped and behind targets agreed under a 130 billion euro ($160.4 billion) financial rescue package, Athens faces a 3.2 billion euro bond maturity on Aug. 20. The bond is held by the European Central Bank.

“There will be an announcement on Friday on the amount and details,” the official told Reuters.

The additional sale of short-term debt will come on top of a three-month T-bill auction next week to roll over a previous 1.6 billion euro issue. Shut out of bond markets, Greece issues T-bills on a monthly basis to refund maturing short-term paper.

European partners had promised they would find a way to cover Greece’s funding needs in August and German newspaper Die Welt has reported the ECB agreed last week to raise the upper limit of T-bills the Bank of Greece can accept in exchange for emergency loans.

The move will allow the Greek government to access up to an extra 4 billion euros of funds. The resumption of bailout funding hinges on a progress report by the troika of European Union, International Monetary Fund and ECB inspectors, which is not expected before September.

Key to a positive report from the troika is the finalisation of 11.5 billion euros of austerity cuts due in 2013 and 2014, which Greek political leaders have been discussing for weeks.

The three leaders - Prime Minister Antonis Samaras and his allies, Socialist leader Evangelos Venizelos and Democratic Left party chief Fotis Kouvelis - last week broadly agreed on the cuts, but are continuing talks to identify specific measures.

They still need to nail down measures to account for about a third of the entire package, Finance Minister Yannis Stournaras said ahead of talks between the party chiefs later on Tuesday.

“We need to push through the necessary measures to save the country,” Stournaras told reporters.

“11.5 billion euros is a significant amount and we’re not there yet. We’re missing about 3.5 to 4 billion euros.”

A second government official said the three leaders hoped to identify the savings - expected mainly from cuts to health, pension and welfare benefits - by the end of the week before sending them to the troika for approval.

Greece is wholly reliant on its lenders for money to avoid bankruptcy, which it has narrowly dodged several times over the past year.

The new government that took power in June has promised it will do all to keep Greece in the euro zone, but European policymakers have warned the country could be cut loose if it fails to implement austerity measures and pledges to reform.

Eurogroup President Jean-Claude Juncker told Germany’s WDR television that a Greek exit would not be desirable but that it would be “manageable” for the bloc.

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