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EU-IMF debt review to continue next week

Greece sought Tuesday to convince the EU and IMF that its economic programme is back on track to unlock eight billion euros in rescue funding needed to prevent running out of cash next month.

Finance Minister Evangelos Venizelos held a conference call with head auditors from a so-called troika of the European Commission, the International Monetary Fund and European Central Bank to finalise measures needed for Greece to meet its deficit cutting target, his office said.

An audit had been suspended in early September, with sources close to the mission citing lack of progress with reforms, placing the release of an eight-billion-euro ($11 billion) loan slice at risk.

But the commission, the EU’s executive, announced after Tuesday’s telephone talks that a full troika mission “is now expected to come back to Athens early next week to resume the review, including policy discussions”.

“Good progress was made” at Tuesday’s talks, the statement said, “and technical discussions will continue in Athens over the coming days.”

Venizelos will also hold talks with creditors “this weekend in Washington at the annual IMF meeting”, his ministry said.

The latest forecasts put out by the IMF on Tuesday see Greece’s public deficit coming in at 8.0 percent of national output this year, instead of the 7.6 percent agreed with creditors, and its economy contracting more than expected at 5.0 percent.

Greece has been under pressure to plug a budget hole of more than 2.0 billion euros to meet the terms of a 110-billion-euro EU-IMF bailout contracted last year.

A new EU aid package worth 159 billion euros cannot be finalised without a positive conclusion to the latest fiscal audit.

Athens earlier Tuesday raised 1.625 billion euros in a sale of three-month treasury bills with return to investors stable at 4.56 percent, the debt management agency (PDMA) said.

But the debt-hit nation urgently needs the rescue funds before its money for wages and pensions runs out in October.

“We will do whatever it takes to achieve a primary surplus by April,” government spokesman Elias Mossialos said ahead of the talks.

A cabinet meeting has been announced for Wednesday morning, from which Greek media expect a green light for measures agreed with the creditors focused on shrinking the public sector.

The government announced last week a new hefty property tax and is expected to make further cuts in the country’s massive state payroll after the finance minister admitted there was “surplus” staff in the civil service.

In a sign of growing exasperation among Greeks towards a steady wave of austerity measures, civil servants demonstrated in Athens and transport staff announced a nationwide strike for Thursday.

“Workers are not animals that you can throw onto the street,” said Babis, a garbage collector participating in the street protest.

“We have reached our limits, and our limits are poverty and misery,” added Dimitris, an interior ministry worker.

Meanwhile in Lisbon, Portuguese Prime Minister Pedro Passos Coelho said his country may need fresh financial aid from the European Union and the International Monetary Fund in the case of a Greek default.

“In the case of a default of Greece, this aid could be necessary and it is important that our partners are convinced that it is worth helping Portugal, and in this case, Ireland too,” Passos Coelho said in a television interview.

And in a new blow to the eurozone, Standard & Poor’s downgraded Italy’s sovereign debt rating, citing economic, fiscal and political weaknesses.

The rating agency said it had downgraded Italian debt to “A/A-1” from a “A+/A-1+” grade because of “Italy’s weakening economic growth prospects.”

It added that Italy’s governing coalition was weak and that this would “limit the government’s ability to respond decisively” to events.

Italy has a ratio of debt to output of about 120 percent, but its public deficit is not exceptionally high by the standards of eurozone countries in trouble.

Greece’s debt load is expected to jump from roughly 150 percent of national output currently to nearly 190 percent next year, according to the IMF’s latest forecasts released on Tuesday.

There is widespread belief on financial markets that Greece will end up defaulting on its debts, and that this could have severe contagion effects on Italy and Spain, struggling to convince the markets they will be able to stay on top of their debts.

Greek debt was demoted to junk months ago by all three major rating agencies.

The Greek daily Kathimerini reported on its website late Monday that Prime Minister George Papandreou was considering calling a referendum on whether Greece should continue to tackle its debt crisis within the eurozone or by exiting the single currency.

A finance ministry official called the report “nonsense,” and Venizelos said, “Greece’s participation in the eurozone and euro is a national strategic choice that is irrevocable and fundamental …”