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Greece's international rescue deal takes shape

26 April 10 00:11 GMT

By Andrew Walker
BBC economics correspondent, Washington

The Greek rescue package inches forward.

The decision by Prime Minister George Papandreou to ask the International Monetary Fund (IMF) and the European Union to activate an aid plan has overshadowed a weekend of meetings in Washington of top financial officials.

Finance Minister George Papaconstantinou was here pressing the case for help. At the IMF, at least, he is pushing at an open door.

IMF chief Dominique Strauss-Kahn professed himself to be "impressed with the Greek authorities' determination to take the actions necessary to put their economy back on track".

No fresh decisions were taken. That will have to wait until after an IMF and European team have finished their work in Athens. But the preparations for aid have accelerated.

Minister's warning

The numbers being talked about are large.

The contribution from the countries using the euro could be up to $40bn (£26bn).

The IMF won't give figures, but it could be another $20bn, and might even exceed the record for what's called a stand-by loan - $21bn for South Korea in the late 1990s.

Mr Papaconstantinou insists the deal will be done by early May, when Greece is due to make another debt payment.

It might be possible to borrow the money from the financial markets, but he would rather avoid that, certainly if the interest rate for Greece is as punishing as it got to in the markets last week.

As for those investors making trades that are in effect bets that Greece will restructure its debt - and default on it - Mr Papaconstantinou had a warning.

"They will lose their shirts," he said.

He did his best to exude utter confidence.

"Debt restructuring is off the table. It has never been suggested by Greece. As for the suggestions that Greece might abandon the Euro - 'there is absolutely no basis in reality'."

German distaste

But that kind of talk, that perhaps Greece should consider leaving, keeps coming up in Germany.

For all Mr Papaconstantinou's insistence that a deal will be done very soon, the obvious distaste in Germany about a rescue just won't go away.

Chancellor Angela Merkel is on board - though only because the alternative looked even more dangerous.

The stability of the Euro area and the German banks which hold Greek government debt was too much of a concern.

Meanwhile, the negotiations on the policies that Greece will have to follow continue in Athens, with two main focuses.

There's the direct attention on the overstretched government budget and measures to enhance the capacity of the economy to grow in the long term.

In the short term it is likely to shrink, Mr Papaconstantinou accepts, this year and possibly next. But long-term growth is central to generating the tax receipts to bring borrowing down.

The IMF's second-in-command, John Lipsky, acknowledged in a BBC interview that in the immediate future the reforms won't be easy or enjoyable.

But he said he is confident that the IMF, Greece and the European countries will produce policies and financing that will restore balance to the Greek economy and usher in a new era of success. He is nothing if not ambitious.

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