IMF experts begin work in Athens

ATHENS, Apr 7 – IMF advisors began talks here on Wednesday to help Greece enact huge budget cutbacks just as the climate around its debt crisis worsened, driving the euro down further.

The IMF advisers began talks with Finance Minister George Papaconstantinou amid great tension on financial markets over Greek strategy to raise funds urgently to fund a massive budget deficit and redeem old debt falling due.

In London, the euro fell further, driven down again largely by anxiety over the Greek crisis, and was being quoted at 1.3387 dollars from 1.3397 dollars late on Tuesday

At Credit Agricole CIB, analyst Stuart Bennett said that the euro continued to be undermined by the situation in Greece, which faces a deepening dilemma of huge debt, dangerously high interest rates and damaging market rumours.

The International Monetary Fund experts are officially on a mission to advise ministers on how to manage budget cutbacks and clamp down on tax fraud in line with targets imposed by the European Union.

"During this technical assistance visit, the IMF is expected to analyse and make suggestions on budget and tax issues," the finance ministry said.

The IMF mission was requested by Greece as it battles huge budget deficits and a debt mountain of nearly 300 billion euros (402 billion dollars).

Athens has set itself an enormous task of slashing its budget deficit by four percentage points this year in the midst of a growing recession.

But at the same time the market interest rates it has to pay on its debt have jumped up, soaking up much of the intended savings.

The rate or yield, which had leapt to slightly above 7.0 percent on Tuesday, eased on Wednesday to 6.883 percent.

This is still sharply above the level Greece considers bearable, and at BNP Paribas in London, analysts commented "the situation is very fragile" and that a swirl of rumours was "weighing heavily" on Greek bonds.

"The strong rise in yields raises concerns about the cost of debt for Greece," they said.

At Capital Economics in London, analyst Jonathan Loynes commented that "the latest rise in yields is a major blow to hopes that Greece might yet manage to muddle through on its own."

And at Goldman Sachs, chief European economist Erik Nielsen described a muddle of information on the markets on Tuesday as "terrible news" and warned of possibly "very troublesome days."

Prime Minister George Papandreou was to issue new warnings about the situation to a cabinet meeting on Wednesday, Greek media reported.

There is also concern that Greece\’s crisis measures are based on estimates that are rapidly being outpaced by the country\’s deepening recession.

The finance ministry has already been forced to revise its estimate on the economy\’s shrinkage in 2009 from 1.2 percent to 2.0 percent.

On April 22, the European Union\’s statistical agency Eurostat is expected to announce that Greece\’s budget deficit in 2009 will be higher than the 12.7 percent of gross domestic product announced by the government, Greek news reports said.

The Greek finance minister on Tuesday acknowledged that the deficit figure will likely be higher but said that the revision would be small.

"We are not talking about major changes," he told Mega television, suggesting a revision of less than a percentage point.

"Our goal is to cut (the deficit) by four percent. We have taken measures worth (a reduction of) 6.4 percent," he said.

The IMF experts got down to work a day of drama on financial markets driven by many and varied reports of Greek strategy to find urgent funding of a huge public deficit.

One report, belatedly denied by the authorities, suggested that Greece was having second thoughts about any formal IMF involvement in any financial rescue, because of tough conditions which the fund might impose.

Greece desperately needs tens of billions of dollars of loans at an affordable rate to be able to repay maturing debt in coming weeks and months.

In February and March, Greece took strains within the European Union over its debt crisis to a new pitch by warning that it might go to the IMF if the EU did not help it to borrow at reduced rates.

The EU eventually came up with a vague potential safety net which would involve the IMF, but there is widespread uncertainty about if, when and how it might come into force.