Greece: IMF to pump in billions more
The International Monetary Fund is preparing to pump more money into Greece’s stricken economy in an attempt to calm turmoil on the financial markets.
The IMF said it stood “ready to continue its support” for the country providing the government introduced far-reaching economic reforms. It was threatening to withhold support for Greece, which was due to be paid next month, but this is now thought unlikely.
A new bail-out package, the second in 13 months, is expected to be agreed over the next few weeks.
Greek Prime Minister George Papandreou today named a new cabinet to muster support for painful economic reforms, despite public unrest and a split in his party that could push the country closer to debt default.
The defence minister Evangelos Venizelos has been appointed finance minister. And finance minister George Papaconstantinou becomes the environment minister in the reshuffle.
Mr Papandreou delayed the announcement of the new team late yesterday in what looked like a sign he was having difficulty finding a suitable person to hold the key financial position.
The political upheaval has pounded markets and drawn criticism from other European Union states, where policymakers dithered over how best to keep funding Greece and forestall a 'credit event' that could cause global economic havoc.
China weighed in again earlier today, with Vice Foreign Minister Fu Ying saying it was 'vitally important' Europe sorted out its debt mess. China's central bank said earlier this week that the European debt crisis could spread and worsen.
The European Union’s top economic official, Olli Rehn, said he expected the EU and the IMF to release a €12bn loan in early July to keep Greece solvent.
Greece was warned last night that it must introduce austerity cuts and not default on repayments on its emergency bail-out loan as a condition of the new deal.
Fears that Greece was about to default on repaying its debts rocked financial markets yesterday.
At one point, the value of the FTSE 100 had dropped by 1.5 percentage points.
But after the IMF’s statement, stock prices began to recover. By the close of trading the FTSE had dropped 0.76 percentage points to 5,699, a loss of more than £10bn. The euro fell against other currencies.
Last night the Greek prime minister, George Papandreou, announced a cabinet reshuffle and said he would put himself forward for a vote of confidence as he seeks to force through spending cuts and tax rises against widespread opposition.
An attempt to form a national unity government has failed. The country has been blighted by strikes and riots this week while several politicians have resigned in protest at the proposed austerity drive.
Greece’s credit rating has been cut to the lowest in the world and its debts are now regarded as less secure than those in poor developing countries. There were fears that if Greece defaults on its debt repayments, other countries such as Ireland may be tempted to follow suit, leading to another financial crisis.
Herman Van Rompuy, the president of the EU, said last night that the euro would emerge stronger from the crisis.
Mr Rehn acknowledged it would take longer to put together a second rescue package for Greece due to differences over how to make private investors share the burden.