IMF Team Arrives in Greece to Aid Government on Deficit Control

By Maria Petrakis and Simon Kennedy

Jan. 12 (Bloomberg) -- A team of International Monetary Fund officials arrive in Greece today to aid the government in its efforts to tame Europe’s biggest budget deficit.

The mission, “within the context of the regular surveillance that the IMF provides to its membership,” will help the government with “pension reform, tax policy, tax administration and budget management,” a spokeswoman for the Washington-based lender said in an e-mailed statement yesterday.

The visit comes as Prime Minister George Papandreou moves to complete a plan to convince the European Union that Greece can reduce the shortfall from 12.7 percent of output in 2009 to less than 3 percent in 2012. EU and European Central Bank officials were also in Athens last week to vet the government’s efforts and EU President Herman van Rompuy also visits today.

The so-called stability pact will be discussed at a Cabinet meeting by the end of the week, Papandreou said on Jan. 10. He also plans to hold a news conference this week to outline the government’s priorities for the year.

“The Greek government is aware of the seriousness of the situation,” Olli Rehn, EU commissioner-designate, said yesterday during his confirmation hearing before a European Parliament committee in Brussels. “The commission is assessing the matter with major concern.”

Greece last week rejected speculation that it will need a bailout to tackle the deficit and avoid becoming the first euro nation to default.

‘Good Standing’

The IMF, which has moved to shore up economies from Hungary to Pakistan over the past 18 months, is “taking a close look” at Greece’s policies “and forming an opinion about their likely impact,” John Lipsky, the IMF’s first deputy managing director, said in an interview on Jan. 6. Greece is an IMF member in “good standing,” Lipsky said.

Finance Minister George Papaconstantinou will present the Greek plan later this month to the European Commission as he seeks to avoid possible penalties under the EU’s excessive- deficit procedure.

Papaconstantinou has pledged to cut the deficit to 8.7 percent of gross domestic product this year and below the EU’s 3 percent limit by the end of 2012, a year earlier than the original plan.

The widening deficit prompted Fitch Ratings, Standard & Poor’s and Moody’s Investors Service to lower Greece’s creditworthiness last month, fueling concern about a possible default.

Bonds Slump

Greek bonds slumped in December. The premium investors demanded to buy Greek 10-year government debt over comparable German bonds widened to 276 basis points on Dec. 21, the widest since March 17. That gap narrowed to 217 basis points yesterday from 220. A basis point is 0.01 percentage point.

Greece’s deficit has prompted speculation from some investors that the rest of the EU would save the country from default if such a move were necessary. The EU will support Greece’s efforts to tame the deficit, Spanish Prime Minister Jose Luis Rodriguez Zapatero, who holds the EU’s rotating presidency, said last week in Brussels.

How far support from the EU or ECB would go remains unclear. ECB Executive Board member Juergen Stark said in a Jan. 6 interview in Italian newspaper Il Sole-24 Ore that “markets are deluding themselves” if they are counting on a bailout.

The Brussels-based commission will make a recommendation on the Greek deficit-reduction plan to EU finance ministers, who will likely announce their final ruling at a meeting in Brussels on Feb. 15-16.

To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Simon Kennedy at skennedy4@bloomberg.net