IMF says would help Greece if asked

 

The International Monetary Fund would help Greece if asked but is confident the country's government will take the necessary action to deal with its fiscal crisis, the head of the fund said on Thursday.

Greece's three-year plan to repair public finances got conditional European Union approval on Wednesday. But Brussels vowed to hold the country strictly to its austerity plan as market turmoil spread to other euro zone periphery countries.

"We are there to help. I have a mission in place providing technical advice at the request of the Greek government and if they ask me to intervene, we will do it" IMF Managing Director Dominique Strauss-Kahn told France's RTL radio.

"But I totally understand the Europeans who want to try and sort the problem out amongst themselves."

He said the Greek situation was serious but did not think the country was on the verge of bankruptcy.

"The Greek situation is very serious. The government of George Papandreou, from this point of view, is aware of the difficulties. I have confidence that Prime Minister Papandreou will take the necessary measures. But they are very difficult measures" IMF's Strauss Kahn said.

He said Greece's socialist government, which came to power in October last year, had not campaigned on austerity measures and faces a difficult situation politically.

Despite the drastic measures to reduce a budget deficit which ballooned to 12.7 percent of GDP last year, Greece's finance minister expects the economy, struggling with its first recession since 1993, to start expanding again in the second half of this year.

"We are expecting, from mid-2010, a return to positive growth rates" Finance Minister George Papaconstantinou told the Financial Times, forecasting an overall GDP contraction of just 0.3 percent this year despite the austerity measures. 

On Tuesday, Greece announced it would slap a 10-15 percent hike on fuel taxes and extend a wage freeze in the broader public sector to bring the deficit under control.

Papaconstantinou said the real test for Greece, which has seen its borrowing costs skyrocket as markets fret over its debt load and soaring deficit, would be implementing the fiscal plan.

"We have set out a full programme, which once implemented without deviation will be more than enough" he told the paper.

Markets remain unconvinced.

The yield spread of 10-year Greek government bonds over German Bunds widened by 12 points to 360 basis points on Thursday but well below a euro lifetime high above 400 basis points hit last week.

Investors are also testing other euro zone nations with large debts.

The premium investors demand to hold Portuguese government bonds rather than benchmark German Bunds widened nine basis points on the day to 154 basis points ahead of a parliament vote the government said could make it tough to cut its budget deficit gap.