IMF says Greek loan talks stuck as bankruptcy looms

ATHENS: Greece's negotiations with international lenders for desperately needed rescue funds some two weeks before bankruptcy looms are stuck, the IMF said Thursday, sending Greek stocks plunging.

The International Monetary Fund said the talks were stalled over the conditions for financing Greece as it seeks a two-year extension to meet fiscal goals.

While Athens has made "good progress" on fiscal and structural reforms, IMF spokesman Gerry Rice said in Washington, "an understanding must also be reached between Greece and its creditors on financing terms consistent with debt sustainability."

That news triggered a five percent drop in Athens' main ATHEX stock index, which tumbled below the 800 point level to close at 761.24 points.

Shares in banks, which are awaiting some of the rescue money to shore up their capital, were the worst hit, with the banking stocks sub-index down by 11.7 percent.

Greece, the IMF, the European Union and the European Central Bank, known as the troika, have been locked in discussions for weeks on revising terms for the country's bailout after it fell short of targets which needed to be met for the release of the next installment of funds from the three lenders.

Athens has asked for the fiscal targets to be pushed back another two years, to give it more room to rekindle economic growth after a crushing austerity programme sent it into a deeper recession than the lenders had expected.

Greek Prime Minister Antonis Samaras has said the coffers in Athens will run dry on November 16 -- when a three-month treasury bill worth five billion euros must be repaid -- unless his country receives the next 31.2 billion euros ($40.4 billion) in rescue funding.

Samaras had announced on Tuesday that his government had agreed with the mission of troika auditors in Greece on the terms of a new 13.5 billion euro austerity package needed to unlock the next instalment of rescue loans.

Accordingly, the finance ministry on Wednesday introduced a budget and a three-year economic programme pledging the required level of cuts in 2013-14.

But on the same day the European Commission warned that a debt deal with Athens was still pending. Eurozone finance ministers are due to make a final decision on the payout by November 12.

Finance Minister Wolfgang Schaeuble of Germany, Europe's paymaster, noted that considerable progress had been made in the talks with Greece "but there is still a lot of work to do."

The 2013 Greek budget gives a grim picture of the outlook for the country.

It predicted that gross domestic product in Greece -- already in its fifth year of recession -- would shrink by 4.5 percent compared with a forecast of 3.8 percent a month ago, although below the 6.6 percent decline expected for this year.

The 2013 public deficit forecast was raised to 5.2 percent from the previous prediction of 4.2 percent.

The government is planning 9.4 billion euros ($12.2 billion) in cuts which will affect mainly state wages, pensions and benefits that have already been drastically reduced over the past two years.

But it will still need to borrow over 68 billion euros next year, the draft budget said.

"If the deal does not pass... the country will be led to chaos," Samaras warned on Tuesday.

The IMF on Thursday also pushed for wealthy Greeks to pay their fair share of the tax burden amid uproar in Greece over a list of alleged tax evaders.

Greek investigative journalist, Costas Vaxevanis, was arrested Sunday after publishing the so-called Lagarde list, named after IMF chief Christine Lagarde, who in her previous position as French finance minister in 2010 passed a roster of some 2,000 Greeks holding Swiss bank accounts to the Greek government.

The crushing austerity measures in Greece, with no sign of relenting, have led unions to threaten more social unrest, announcing a 48-hour general strike starting November 6 to coincide with debates next week on the budget and other reform measures.

US has no plans to lend money to IMF

WASHINGTON: The US has no plans to lend money directly to the International Monetary Fund, a senior Treasury official said Friday, as the Fund pitches to boost its resources in the case of financial emergency.

The official, who would not be identified, said the US believes the IMF has enough resources for its needs.

Currently the IMF has $389 billion (291 billion euros) available to lend to its member countries.

IMF Managing Director Christine Lagarde has said it needs to boost its resources to be able to cope with potential large-scale financial meltdown -- with all eyes in recent months on Europe.

On Friday, IMF spokesman Gerry Rice said the Fund "will need more resources should the crisis deepen further," suggesting one source could be bilateral loans from central banks, including the European Central Bank.

"The European authorities -- like some other IMF member countries -- are exploring bilateral loans to the IMF," Rice said in a statement.

"As we have also noted, such loans could indeed come from member country central banks," some of which are already lending to the Fund, he added.

Bilateral loans to the IMF could be turned around and lent on to countries in need, under the Fund's strict conditions for fiscal probity.

Analysts see that Spain and Italy, their finances deeply out of balance and markets pushing up their costs to borrow, could be in line for rescue packages from the IMF.

But the Fund's board, which is already suspicious of committing any more money to the crisis-wracked eurozone, would have to sign off on how any funds are used, including those from bilateral loans.

UN cuts world growth forecast, IMF to follow

UNITED NATIONS: The United Nations on Thursday slashed its forecast for world growth to 2.6 percent in 2012 and warned the eurozone debt crisis could further undermine the global performance.

"The world economy is teetering on the brink of another major downturn," the UN said in a warning that came as the International Monetary Fund said it would also lower its global growth forecast.

After rising 4.0 percent in 2010, the UN predicted 2.6 percent world growth in 2012 and 3.2 percent in 2013. UN economists had earlier said there would be 3.6 percent growth next year.

"This forecast is conditioned however on containment of the eurozone debt crisis and a halt to further moves toward stringent fiscal austerity in developed countries," said the UN World Economic Situation and Prospects report.

It said 2012 will be a "make or break year" with the world proceeding with slow economic recovery or falling back into recession.

Developing countries, led by China, Brazil and India, are predicted to continue pulling the world economy forward with average growth of 5.4 percent in 2012 and 5.8 percent in 2013. But even this is down from 7.1 percent in 2010.

"From the second quarter of 2011, economic growth in most developing countries and economies in transition started to slow notably," said the report which hit out at governments in Europe and North America.

The UN revised down its 2012 prediction for every major country and region: it now foresees 1.3 percent growth in the United States, down 0.7 percent from its last forecast, 1.5 percent for Japan (down 1.3 percent), 0.5 percent for the 27 nation European Union (down 0.8 percent), 8.7 percent for China (down 0.2 percent), 7.7 percent for India (down 0.5 percent) and 3.7 percent for South Africa (down 1.1 percent).

In Latin America, Brazil's 2012 growth was put at just 2.7 percent, down 2.6 percent from the earlier forecast.

"Failure of policymakers, especially those in Europe and the United States, to address the jobs crisis and prevent debt distress and financial sector fragility from escalating, poses the most acute risk for the global economy," the forecast said.

"Because of collective inaction, the situation is likely to deteriorate further," Jomo Kwame Sundaram, UN assistant secretary general for economic development, told a press conference to introduce the report.

"Unfortunately the likelihood of the pessimistic scenario is increasingly likely," he added.

The sovereign debt crises in Europe is a "cause and an effect" of the global slowdown while the United States is also suffering from unemployment and "shaken consumer and business confidence," said the report.

As the European and US economies are so close "their problems could easily feed into each other and spread to another global recession," the UN warned.

The IMF said Europe's worsening economy and financial market turmoil meant it was likely to revise downward its predictions made in its World Economic Outlook report issued in October.

"We will likely be revising downwards our forecast," IMF spokesman Gerry Rice told news briefing, without elaborating.

"The global recovery remains unbalanced and bumpy. Since that WEO there has been a marked slowdown in economic activity, especially as we all known, in Europe. The turmoil in the financial market is also contributing to further uncertainty about the economic forecast."

An update will be made in January, Rice added.

Markets surge after eurozone summit deal

BRUSSELS, Belgium - Europe's ground-breaking deal to save its single currency sent markets soaring and bolstered the euro Thursday as analysts queried whether the masterplan to put paid to the debt crisis would stand the test of time.

After an unprecedented marathon of talks, involving two EU and two eurozone summits in just four days, Europe's leaders in the small hours Thursday agreed a new rescue of Greece, a trillion-euro (S$1.75 trillion) bailout fund, and cut a deal squeezing banks to share the burden of the two-year debt crisis.

"We have done what needed doing," said German Chancellor Angela Merkel.

News of the deal sent markets surging, with stocks in Paris and Milan up five per cent in mid-afternoon trade and the euro hitting a seven-week high against the dollar.

"Decisions have been made in Europe, and even if we are short on detail Europe's leaders are talking the right game and the markets seem to like it," said Kathleen Brooks, an analyst at traders Forex.com.

With the deal reached, IMF chief Christine Lagarde welcomed "substantial progress", but European Central Bank chief Jean-Claude Trichet warned that "all of this now requires a lot of work and a lot of quick work."

Analysts likewise welcomed the deal by European Union leaders, repeatedly accused of doing too little too late in the face of a festering two-year crisis, that after claiming Greece, Ireland and Portugal threatens Europe's third and fourth economies, Italy and Spain.

EU institions and governments "now seem more determined to get ahead of the crisis curve," said Janis Emmanouilidis of the European Policy Centre. "But it is by no means clear whether the final package will be able to boost confidence and provide orientation in the weeks and months to come."

Russia said the deal was grounds for "cautious optimism" to hold off dangers on the global front while China pledged faith in the eurozone and confirmed that President Hu Jintao would speak to French counterpart Nicolas Sarkozy later Thursday.

And Beijing, like Moscow, reiterated it would likely take a stake in the European rescue fund through the IMF, a sign that emerging economies plan to to play a larger role in the world economy.

As talks dragged on for almost 10 hours overnight in Brussels, the last and perhaps toughest chapter in the four-point plan was a deal between eurozone leaders and the Institute of International Finance banking lobby to force private investors to take a 50 per cent loss on Greece's debt.

In backroom drama, Sarkozy and Merkel broke off from the summit to save the day and cut a deal with the head of the banking lobby, Charles Dallara.

"We said it was our last word, our last offer," said Merkel of Europe's threats to allow Greece to default failing an agreement with the banks.

"Not only the future of Greece but the future of Europe was at stake," said Deutsche Bank chief Josef Ackermann after negotiating the write-down in his role as chairman of the IFF.

The deal aims to slice a whopping 100 billion euros off the 350-billion-euro debt pile hampering Greece, which also approved an accord for a 100-billion-euro loan over the next three years.

But financial analysts said they were waiting to see if all banks would sign on. "We still have no confirmation of the extent of the voluntary takie-up said Azad Zangana, of Schroders Quickview.

Prime Minister George Papandreou, hailed "a new era, a new chapter" for Greece, which triggered a crisis threatening to trigger global recession.

To address that danger, eurozone leaders agreed to boost their debt rescue fund to one trillion euros.

The firepower of the European Financial Stability Facility (EFSF) is to be leveraged up between four- and five-fold using clever financial footwork, to avoid increasing commitments from member states as taxpayers in countries such as Germany complain of pouring money into a bottomless hole.

The EFSF will provide risk insurance on new bonds issued by fragile governments in a bid to reassure investors.

A second fund, linked to the EFSF, will be created to attract private and public investors, including the likes of China and Russia. The investment vehicle might be linked to the International Monetary Fund.

Proposals for international help came as global powers pressed European leaders to come up with a lasting solution to the debt crisis before a G20 summit in France on November 3 and 4.

With fears growing that the debt drama will turn into a banking system meltdown, European leaders also struck a deal to force banks to recapitalise at a summit of the 27-nation EU that preceded the eurozone talks.

The European Banking Authority said banks would need 106 billion euros to fulfill the requirements.
Across Europe Thursday, major lenders, fearing government meddling and even nationalisations, said they could readily raise the capital without state help. With fears of contagion hitting Italy, Prime Minister Silvio Berlusconi came to the summit with a detailed list of pledges to cut his country's 1.9-trillion-euro debt.

"Whilst we expect markets to be jubilant as we enter the new year, questions remain as to the longer term solvency of some peripheral euro-zone countries," said Mike Turner of Global Strategy and Asset Allocation.