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EU racing to draft second Greek bailout: sources

(Agencies)
Updated: 2011-05-30 22:25

BRUSSELS/ATHENS - The European Union is working on a second bailout package for Greece in a race to release vital loans next month and avert the risk of the euro zone country defaulting, EU officials said on Monday.

Greece's conservative opposition meanwhile demanded lower taxes as a condition for reaching a political consensus with the Socialist government on further austerity measures, which Brussels says is needed to secure any further assistance.

Related readings:  EU, IMF expected to judge Greece as protests swell  Greece discusses fiscal plan, lenders' pressure up

Moves to plug a looming funding gap for 2012 and 2013 were accelerated after the International Monetary Fund said last week it would withhold the next tranche of aid due on June 29 unless the EU guarantees to meet Athens' funding needs for next year.

Senior EU officials held unannounced emergency talks with the Greek government over the weekend, an EU source said.

Greece took a 110 billion euros ($158 billion) rescue package from the EU and IMF last May but has since fallen short of its deficit reduction commitments, raising the risk of a default on its 327 billion euro debt - equivalent to 150 percent of its economic output.

The tax cuts sought by conservative New Democracy leader Antonis Samaras could aggravate the revenue shortfall, but he argues they are essential to revive economic growth.

EU officials said a new 65 billion euro package could involve a mixture of collateralized loans from the EU and IMF, and additional revenue measures, with unprecedented intrusive external supervision of Greece's privatisation program. "It would require collateral for new loans and EU technical assistance - EU involvement in the privatisation process," one senior EU official said, speaking on condition of anonymity.

Extra funding for Greece faces fierce political resistance from fiscal conservatives and nationalists in key north European creditor countries - Germany, the Netherlands and Finland - complicating EU governments' task.

Greek daily Kathimerini said finance ministers of the 17-nation single currency area may hold a special meeting next Monday on a new package. European Commission spokesman Amadeu Altafaj dismissed the report as "unfounded rumours, once again."

The next scheduled meeting of euro zone finance ministers is on June 20 in Luxembourg, having been pushed back a week from its original date. It will be followed three days later by a summit of EU leaders to assess the 18-month-long debt crisis.