ATHENS (MNI) – Greece’s government, concerned that intolerably
stringent conditions would be imposed by the International Monetary Fund
in exchange for aid, wants to amend the deal struck by Eurozone leaders
at the EU summit late last month in order to bypass an IMF financial
contribution, senior government sources in Athens told Market News
International.

“The reason is that since the summit, [Greek] Prime Minister
[George Papandreou] has been receiving information from the IMF about
the possible measures and reforms it would be asking in exchange for
financial support,” said one senior official. “The measures are tough
and might cause social and political unrest. After that, various cabinet
members voiced their opposition to the IMF contribution.”

Several Greek officials have already voiced their concern that the
agreement reached by Eurozone leaders requires a lot of time to be put
into effect and that the procedure is bureaucratic. The sources said the
Greek government will be seeking a clearer European mechanism, without
the participation of the IMF, which will be speedier and will respond
immediately to a country’s official request for financial support.

“What the government wants is to improve the deal and iron out the
details that have not been decided yet,” the senior official said.
“There is a strong chance that Greece might be forced to ask for
financial support after all, despite official statements to the
contrary, and it is essential that the terms and conditions be clear.”

According to the sources, Papandreou sought to keep his distance
from the EMU-agreed aid deal during the last cabinet meeting just prior
to the Easter break, telling ministers, “we have our own proposal on the
table which is more effective, practical and speedier.”

Greece’s apparent aversion to IMF involvement represents a sharp
reversal from just a month ago, when Papandreou said his government
would go to the IMF on its own if European leaders couldn’t agree on the
details of an emergency package.

At the summit in late March, the leaders of the 16 Eurozone nations
agreed on a deal under which aid to Greece would be provided “as a last
resort,” with contributions from the IMF and from EMU states — the
latter in the form of bilateral loans.

The Greek side will also be asking that the “last resort” condition
for triggering aid, stipulated in the EMU agreement, not require
Greece’s total inability to borrow in the markets — which Germany is
pushing for — but rather something “several steps before that.”

According to the Greek government sources, Papandreou is looking
for the right time to put the issue back on the table for discussion.
One possibility is that Greek Finance Minister George Papaconstantinou
would broach it at the informal Ecofin meeting — to be attended by
Eurozone finance ministers and national central bank governors – in
Madrid later this month.

Papandreou himself is planning to raise the issue with European
Council President Herman Van Rompuy, the sources said.

While the IMF might insist on tough fiscal conditions in exchange
for funds, it would almost certainly charge lower interest rates on
loans than Greece’s fellow Eurozone members. The EMU deal struck at the
summit states that bilateral loans from Euro area states are to contain
“no subsidy element” — in contrast to the IMF’s traditional practice.

The Financial Times reported over the weekend that Germany, citing
the “no subsidy” clause, wants to charge Greece between 6% and 6.5% if
the loans are ever called on. Other Eurozone states would be satisfied
with a rate of between 4% to 4.5%, the paper reported.

Either of those, however, are well above what the IMF is likely to
charge. The FT, citing EU officials, said the IMF would contribute up to
E10 billion, or one-third, of any eventual aid package. Greece could
probably borrow about E3 billion of that amount under the IMF’s standby
arrangements at a rate of 1.25%, the paper reported. The remainder would
carry a rate of around 3.25%.

Since the contingency aid deal was announced late last month, some
analysts have wondered why Greece would bother borrowing from its fellow
Eurozone states when it could get money so much more cheaply at the IMF.

And some high profile officials at the European Central Bank warned
that the conditions requested by the IMF would actually be more lenient
than those already required by the European Union’s Stability and Growth
Pact.

ECB Executive Board member Lorenzo Bini Smaghi, for example, argued
that the conditions imposed by the IMF “are generally not stronger but
rather weaker than those that we in Europe have now agreed on.” He
warned that, in the event of IMF involvement, “these weaker conditions
will become the new standard and replace the EU’s Stability Pact.”

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