Greece: No Second Bailout, No Euro

By Salon Staff

Published January 3, 2012 2:54PM (EST)

ATHENS, Greece (AP) — Greece's government warned Tuesday that the debt-crippled country will have to ditch the euro if it fails to finalize a second, euro130 billion ($169 billion) international bailout.

Spokesman Pantelis Kapsis said negotiations in the next three or four months with international debt monitors will "determine everything," including whether Greece escapes a disastrous bankruptcy.

Greece is being kept afloat by a first, euro110 billion ($142 billion) international bailout agreed in May 2010, after investors shocked by the country's huge budget deficit and debt mountain demanded sky-high interest rates to continue buying Greek bonds.

An additional bailout was agreed in October, when it became clear that the first batch of funds would not suffice, but that deal has yet to be finalized.

Sorting out the details of the bailout, which also foresees a euro100 billion writedown of Greece's privately held debt, is the main task of the coalition government headed by former central banker Lucas Papademos, whose short mandate is expected to expire in early April.

"This famous loan agreement must be signed, otherwise we are outside the markets, out of the euro and things will become much worse," Kapsis told private Skai TV.

In return for its first batch of rescue loans from its European partners and the International Monetary Fund, Greece imposed deeply resented austerity measures to contain its budget deficit — set to hit at least 9 percent of GDP last year despite repeated spending cuts and tax hikes.

Kapsis said further cutbacks, possibly including new taxes, might be required to address a revenue shortfall,

"We will see what the shortfall is and it is very likely that measures will be required," he said. "I also don't believe it is easy to impose new taxes, but what does cutting spending mean? To close down the public sector?"

"There is no easy solution," Kapsis said.

The details are expected to be determined during talks later this month with debt inspectors from the EU, the European Central bank and the IMF, who will determine whether the country receives its next euro89 billion ($116 billion) loan installment.

"We can't take (approval of the next installment) for granted," Kapsis warned.

Salon Staff

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