Will tough love fix Greece’s economic woes?

MARTIN CRUTSINGER and JEANNINE AVERSA

Global finance officials are sending Greece a tough love message: Move ahead on economic reforms and we’ll come to the rescue with an emergency loan package

The rapidly escalating Greek debt crisis was expected to dominate discussions at Saturday’s gathering of the 186-nation International Monetary Fund and its sister lending agency, the World Bank.

Greek Finance Minister George Papaconstantinou was scheduled to have a separate meetings with IMF Managing Director Dominique Strauss-Kahn,Treasury Secretary Timothy Geithner and finance officials from Russia and Brazil.

Crippled by soaring borrowing costs, Greece triggered an emergency aid plan Friday to draw cash from the IMF and countries that use the euro. There’s enough money in the package to prevent Greece from defaulting on its massive debts. Eurozone members will contribute $40 billion, while the IMF will pony up $13.4 billion this year.

Athens is already implementing a harsh austerity program that cuts civil servants’ pay, freezes pensions and raises taxes. But the country still faces years of painful cutbacks and doubts about its long-term finances.

The IMF is expediting review of Greece’s request for emergency aid. “You can read a much greater sense of urgency, and that is welcome,” Geithner told reporters Friday following a meeting of finance officials from the Group of 20 countries. “Based on what I heard, they (Greece) are going to move much more quickly to put in place a strong package of reforms.”

The G-20 is composed of the world’s wealthiest industrial countries plus major emerging economies such as China, Brazil, India, South Korea and Russia.

Greece’s debt crisis was discussed at the G-20 meeting and is a “source of concern,” Canadian Finance Minister Jim Flaherty said after the meeting. But the countries didn’t directly address the matter in their joint communique.

The EU’s monetary affairs commissioner, Ollie Rehn, did brief the G-20 officials on the Greek aid plan and it was discussed on the sidelines. “Of course, we could not avoid discussing this issue,” Rehn said. “It has potential implications for financial stability in the European Union and globally.” Rehn said he believed the EU-IMF aid package could be completed by early May.

French Finance Minister Christine Lagarde said she expected to have French parliamentary approval by May 10. Other countries in the eurozone do not have to go to their parliaments for approval, she said. “It is a work in progress.”

Despite the deepening Greek debt crisis, global financial leaders declared Friday that the world’s economy is recovering faster than expected from the worst recession in decades. However, unemployment in the United States and other countries remains high.

The G-20 members papered over sharp differences over proposed new taxes on banks to keep taxpayers from being saddled with the cost of future financial bailouts. The proposed new taxes would also be aimed at restraining the kind of excessive risk taking that led to the crisis.

The communique said that countries would work together to come up with ways to ensure that banks make a “fair and substantial contribution towards paying for any burdens associated with Government interventions to repair the banking system.”

The goal is to present a plan to President Barack Obama and other G-20 leaders when they meet in late June in Canada. Canada is leading the opposition to new bank taxes, arguing that would not be fair to its banks, which did not suffer costly failures in the recent crisis.

“Some countries are in favor,” Flaherty said. “Some countries quite clearly are not. It depends on whether a country has had to use taxpayer dollars to bail out their banks.”

Geithner, however, said the Obama administration hoped to set a good example for other countries by winning congressional approval for a strong overhaul of financial regulations in the United States. Senate debate on the measure is expected to begin next week.

As for future global problems, the G-20 repeated a pledge that all countries will work to eliminate dangerous imbalances, but it avoided prodding China to allow its currency to appreciate against the dollar, a key US aim.

The Obama administration has pushed Beijing to allow its currency’s value to rise, a change that US manufacturing groups contend will help lower America’s large trade deficits and help recoup some of the more than 8 million jobs lost in the United States since the recession began in late 2007.

AP