Debt crisis could still spread to EU core, warns IMF

Despite bailouts for Greece, Ireland and Portugal, Europe's debt crisis may yet spread to core euro zone countries and emerging eastern Europe, the International Monetary Fund said today.



The warning came as government sources in Athens said international inspectors checking on Greece's compliance with its EU/IMF rescue package had found problems and were pressing for deeper spending cuts to cover a likely revenue shortfall.







The IMF said it stood ready to provide more aid to Greece if requested, though the country that triggered Europe's sovereign debt crisis in 2009 still had plenty of untapped potential to raise extra cash itself though privatisations.



"Contagion to the core euro area, and then onwards to emerging Europe, remains a tangible downside risk," the global lender's latest economic report on Europe said.



Finance ministers of the 17-nation single currency area are set to approve a 78 billion euro rescue plan for Portugal next Monday after Finland's prime minister-in-waiting clinched a deal to ensure parliamentary approval of the package.



But markets are increasingly concerned that Greece will never be able to repay its €327bn (£285bn) debt pile and will have to restructure, forcing losses on investors with severe consequences in the euro zone and beyond.



Asked whether there could be a new aid package to help Greece work through its fiscal recovery programme, the IMF's European department director, Antonio Borges, said the fund was open to the possibility.



"The Greeks have to take the initiative, and so far they have not approached us. The IMF stands ready (to provide additional support) as a matter of policy," he told reporters.



The semi-annual IMF report said peripheral members of the euro zone needed to make "unrelenting" reform efforts to overcome the debt crisis and prevent it spreading further.



It also urged the European Central Bank to tread carefully on further rises in interest rates after last month's first increase since 2007, saying euro zone monetary policy could "afford to remain relatively accommodative".







Borges said the programme of austerity measures and structural reforms agreed a year ago was "probably the best thing that can happen" to Greece, though there was always the question of whether it was too ambitious.



The Socialist government has implemented harsh cuts in public spending, public sector wages and pensions but struggled to raise revenue due to deep recession and chronic tax evasion. A general strike yesterday highlighted growing resistance to austerity.



Greek sovereign bond yields hit fresh euro-era highs on a belief that euro zone finance ministers will not deliver fresh aid for Athens next week. The yield on two-year Greek bonds rose to an eye-watering 27 percent.



By contrast, Portuguese and Irish yields eased after the Finnish deal on aid to Lisbon removed one political uncertainty.



The eurosceptical True Finns party, which scored big gains in last month's general election by opposing a Portuguese bailout, said it would not take part in talks to form the next Finnish government.





Nearly 60 per cent of fund managers expecting a restructuring said it would eventually mean a "haircut" in which bondholders have to take a loss. The median expectation was for a 55 per cent cut in the face value of bonds.



Among the economists - who for the most part do not have to make buy or sell decisions - nearly half expected an eventual haircut, but by a smaller 40 per cent.



Greek, European Commission and ECB officials have repeatedly rejected any talk of debt restructuring.





German Finance Minister Wolfgang Schaeuble told parliament in Berlin he saw considerable concern about Greece and doubts about its ability to return to capital markets.



Any fresh aid would have to be tied to clear conditions and could only be considered after EU and IMF inspectors, now in Athens, report on Greek compliance with its fiscal adjustment programme, he said.



Signs of disquiet have begun to emerge from the EU/IMF/ECB troika mission, government sources in Athens said.



"They are forming an opinion that there are difficulties," said one senior government official who requested anonymity. "They are concerned there is a high risk revenue targets will not be met and are pressing for more spending cuts."



The inspectors' assessment is vital to next month's decision on whether Athens receives the next 12 billion euro tranche of its 110 billion euro EU/IMF bailout. Without it, Greece could effectively default.



Ireland and Greece are already dependent on €52.5bn of IMF aid while Portugal is awaiting a €26bn three-year lifeline from the Fund.



Banks in the troubled countries are being kept above water by unlimited ECB liquidity, and the IMF said the central bank might need to extend that system again beyond June 12.

Sport
Thiago Silva pulls Arjen Robben back to concede a penalty
world cup 2014Brazil 0 Netherlands 3: More misery for hosts as Dutch take third place
Sport
Robin van Persie hands his third-place medal to a supporter
Van Persie gives bronze medal to eccentric fan moments after being handed it by Blatter
News
Ian Thorpe had Rio 2016 in his sights
people
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

PROMOTED VIDEO
News
scienceScientists have developed a material so dark you can't see it...
News
Monkey business: Serkis is the king of the non-human character performance
peopleFirst Gollum, then King Kong - now the actor is swinging through trees in Dawn of the Planet of the Apes
Arts and Entertainment
Blackman: Landscape of children’s literature does not reflect the cultural diversity of young people
booksMalorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Voices
Mrs Brown's Boy: D'Movie has been a huge commercial success
voicesWhen it comes to national stereotyping, the Irish know it can pay to play up to outsiders' expectations, says DJ Taylor
Arts and Entertainment
Curtain calls: Madani Younis
theatreMadani Younis wants the neighbourhood to follow his work as closely as his audiences do
Life and Style
Douglas McMaster says the food industry is ‘traumatised’
food + drinkSilo in Brighton will have just six staple dishes on the menu every day, including one meat option, one fish, one vegan, and one 'wild card'
Life and Style
Once a month, waistline watcher Suran steps into a 3D body scanner that maps his body shape and records measurements with pinpoint accuracy
techFrom heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
News
Soft power: Matthew Barzun
peopleThe US Ambassador to London, Matthew Barzun, holds 'jeans and beer' gigs at his official residence. He says it's all part of the job
Sport
Joe Root and James Anderson celebrate their record-beaking partnership
cricketEngland's last-wicket stand against India rewrites the history books
News
Gavin Maxwell in Sandaig with one of his pet otters
peopleWas the otter man the wildlife champion he appeared to be?
News
Rowsell says: 'Wearing wigs is a way of looking normal. I pick a style and colour and stick to it because I don't want to keep wearing different styles'
peopleThe World Champion cyclist Joanna Rowsell on breaking her collarbone, shattering her teeth - and dealing with alopecia
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Day In a Page

Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

How Saudi Arabia helped Isis take over northern Iraq

A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

The evolution of Andy Serkis

First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

You thought 'Benefits Street' was controversial...

Follow-up documentary 'Immigrant Street' has got locals worried
Refugee children from Central America let down by Washington's high ideals

Refugee children let down by Washington's high ideals

Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
Children's books are too white, says Laureate

Children's books are too white, says Laureate

Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Blackest is the new black: Scientists have developed a material so dark that you can't see it...

Blackest is the new black

Scientists have developed a material so dark that you can't see it...
Matthew Barzun: America's diplomatic dude

Matthew Barzun: America's diplomatic dude

The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

Meet the 'Quantified Selfers'

From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

Five-star reviews are just the opening act for British theatre's first non-white artistic director

Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
Mrs Brown and her boys: are they having a laugh?

Mrs Brown and her boys: are they having a laugh?

When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor
Gavin Maxwell's bitter legacy: Was the otter man the wildlife champion he appeared to be?

Otter man Gavin Maxwell's bitter legacy

The aristocrat's eccentric devotion to his pets inspired a generation. But our greatest living nature writer believes his legacy has been quite toxic
Joanna Rowsell: The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia

Joanna Rowsell: 'I wear my wig to look normal'

The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia
Bill Granger recipes: Our chef gives raw ingredients a lift with his quick marinades

Bill Granger's quick and delicious marinades

Our chef's marinades are great for weekend barbecuing, but are also a delicious way of injecting flavour into, and breaking the monotony of, weekday meals
Germany vs Argentina World Cup 2014 preview: Why Brazilians don't love their neighbours Argentina any more

Anyone but Argentina – why Brazilians don’t love their neighbours any more

The hosts will be supporting Germany in today's World Cup final, reports Alex Bellos
The Open 2014: Time again to ask that major question - can Lee Westwood win at last?

The Open 2014

Time again to ask that major question - can Lee Westwood win at last?