Greece expects EU/IMF aid despite dispute

By Renee Maltezou and Angeliki Koutantou

ATHENS (Reuters) - Greece expects to receive another tranche of international aid on schedule in September despite a dispute with the EU and the IMF on fiscal slippages, and it even hopes to win a softer deficit target from its lenders, Greek officials said on Monday.

Athens faces no immediate danger of bankruptcy though it must repay about 10 billion euros of maturing bonds and interest by the end of the year, but any delay in the next tranche of aid could jolt the financial markets again.

"We expect the disbursement of the sixth tranche in September," government spokesman Ilias Mosialos told reporters, saying that Greece would implement the reforms required by its lenders. "Our cash needs will be covered."

Senior EU, IMF and ECB officials interrupted talks on a new aid tranche for the debt-laden country on Friday due to disagreements over why Athens had fallen behind schedule in cutting its budget deficit and what it must do to catch up.

They are due back in mid-September to pore over more data and reform plans for this year and next before deciding whether Greece will get its sixth, 8 billion euro loan instalment.

Greece, which sees the deficit at about 8.1 percent of GDP, blames the fiscal slippage on a deeper-than-expected recession.

Its lenders, who project the gap to reach at least 8.6 percent of GDP, point to delays in implementing reforms such as cutting the public sector payroll, opening up professions to competition and privatising state assets.

Athens now hopes the lenders will set it an easier target than the current 7.6 percent of GDP when they return on Sept. 14, to avoid having to implement even more unpopular austerity measures.

"The target for 2011 will be adjusted to take into account the recession," Finance Ministry Secretary General Ilias Plaskovitis said on state TV NET.

State TV NET reported, without quoting sources, that Greece was hoping for the target to be raised to about 8.6 percent of GDP. Mosialos said the government had not requested the change but was in constant talks with the EU and IMF over this issue.

The EU and IMF are showing signs of growing frustration over delays in the implementation of reforms and will not want to appear lenient on the deficit target -- a key benchmark of the bailout plan that saved it from bankruptcy last year.

But analysts believe a compromise solution would once more be found for Athens to get the aid tranche and stave off a bankruptcy that would affect the whole euro zone.

"If the troika insists on sticking to the old budget targets, it would shock financial markets because the payment of the next tranche and the whole bailout package would be thrown in doubt," said Burkhard Allgeier, chief economist at German bank Hauck & Aufhaeuser.

He said the troika was likely to find a balance to avoid rattling markets while keeping pressure on Athens to deliver.

"They will possibly give the thumbs-up to the next tranche, but at the same time tighten the screws by saying that more has to be done, strengthening fiscal efforts and privatisations."

REFORMS

The row over the deficit and the implementation of reforms that range from increasing tax collection to streamlining a bloated public sector, comes as the EU is struggling to put together a second, 109 billion euro bailout for Greece.

Finland's demand for collateral in return for its cash and lower-than-targeted private sector participation in the package are complicating efforts. Banks have until Friday to say if they will take part in the debt-swap plan.

In a sign of concern over the situation, Greek bank shares were down 5.4 percent at 1315 GMT.

"The bigger issue is that (the dispute with lenders) casts further doubt on whether this muddle-through approach adopted for the Greek crisis will work," said Ben May at Capital Economics. "There will likely be a point where Greece will have to go through a restructuring ... with pretty significant haircuts."

Athens has no benchmark bond maturing in September and is in no immediate danger of bankruptcy. But it needs to pay a total of about 10 billion euros of maturing bonds and interest by the end of the year, mostly in December, analysts say.

Liberal daily Ta Nea wrote on Monday, without naming its sources, that Greece had enough cash reserves for the next 25 days. Government officials declined to comment.

The government pledged on Monday to step up reforms in the 10 days before the EU and IMF inspectors return.

"We will implement our programme," Mosialos said, adding a draft law on taxation would be ready at the end of September.

A Finance Ministry official said the government would focus on privatisations, a labour reserve for excess staff in the public sector and a unified wage bill for civil servants. The cabinet is due to approve on Tuesday a bill to liberalise the taxi business.

(Additional reporting by Harry Papachristou and Tatiana Fragou; Writing by Ingrid Melander)