Greece ready for IMF rescue if eurozone fails to 'rise to the occasion'

Latest €5bn bond issue is oversubscribed
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The Independent Online

Fears that Greece may have to turn to the International Monetary Fund for a rescue package were played down yesterday by European officials and the IMF itself as the country finally succeeded in getting a key bond issue away, with a €5bn (£4.5bn) fund-raising oversubscribed.

Greek government sources have dropped steadily stronger hints in recent days that Athens might have to turn to the IMF in the absence of substantive European support – possibly in an attempt to force the European Union's hand. The Greek finance minister, George Papaconstantinou, said yesterday that the EU should outline the specifics of an aid package to send a message of "tangible solidarity".

"If they would be clearer in what way they'd help Greece if it were necessary, then Greece wouldn't need support," Mr Papaconstantinou said. "In practice, what we are looking for are clear support mechanisms so markets can be assured they can't play games at Greece's expense."

Prime Minister George Papandreou said that the additional €4.8bn of deficit-cutting measures announced this week had more than met all the country has been asked to do and it was now time for Europe to act. Mr Papandreou said the IMF remained an option of last resort if the EU didn't "rise to the occasion". He said: "We don't want an IMF solution, we want a European solution, with our European partners. The difference is the IMF puts money on the table, something that we don't have from Europe yet."

Mr Papandreou is due in Washington for talks with US President Barack Obama next week, but an IMF spokesman said that Greek government representatives were not going to meet their IMF counterparts.

The European Central Bank President, Jean-Claude Trichet, also said it would be inappropriate for the IMF to give help to Greece. Asked about the possibility of Greece leaving the euro area, Mr Trichet added: "I do not comment myself on absurd hypotheses, so that would be my response."

Prior to the package of austerity measures announced by Athens on Wednesday – the third such plan in three months – there had been fears that the Greek government would be forced to go to the IMF rather than to its eurozone partners for assistance. It is entitled to do so, but it would be a considerable humiliation for the eurozone that it had not been able to manage its own affairs.

But there was resistance to any easy rescue package for Greece. Germany, in particular, has been adamant that the Greeks would have to endure another dose of pain before they would countenance any possible bailout.

Mr Papandreou's latest attempt to calm markets and win international approval will lop a further 2 percentage points off the Greek budget deficit as a proportion of GDP, bringing the 13 per cent shortfall this year to 3 per cent in 2012.

Greece has to raise a further €22bn over April and May, in addition to the €5bn bond issue yesterday, which carried a high coupon.

Trojan horse: Germans suggest Greece sells its islands

Two German politicians have offered some novel advice to help the Greeks salvage their ailing economy: "put your islands and national treasures up for sale". Tensions are already high between the two nations with Greece's citizens blaming Germany for forcing the austerity measures recently introduced by Prime Minister George Papandreou.

Josef Schlarmann, a senior member of Chancellor Angela Merkel's Christian Democrats, and Frank Schaeffler, a finance expert for the Free Democrats, heaped more fuel on those fires yesterday.

"Those in insolvency have to sell everything they have to pay their creditors," Mr Schlarmann told the German tabloid Bild. "Greece owns buildings, companies and uninhabited islands, which could be used for debt redemption." The story ran under the headline: "Sell your islands, you bankrupt Greeks! And the Acropolis too!"

Mr Schaeffler added: "The Greek government has to take radical steps to sell its property — for example the uninhabited islands." There are about 6,000 islands in the Aegean Sea, although only 227 are inhabited.

The comments should spice up Mr Papandreou's meeting with Ms Merkel in Berlin today, and Mr Schlarmann called on the German Chancellor not to promise financial aid to their European colleagues. His comments echo the feelings of the German public, who are overwhelmingly against contributing to a bailout for Greece.

However, while Mr Papandreou has been prepared to slash public sector pay and freeze state pensions, the country's deputy foreign minister, Dimitris Droutsas, said yesterday that a sell-off of the islands was "not appropriate at this time".