Rescue deal may not save Greece

Greeces international creditors warn that a second rescue package tentatively agreed in July may not be enough to save the country from bankruptcy, but believe Athens should nevertheless get its next batch of bailout loans, according to a draft report obtained Thursday by The Associated Press.Although the debt inspectors said Greece has missed its deficit-cutting targets and that the pace of its reforms is insufficient, they said Athens should get €8 billion ($11 billion) of bailout loans as soon as possible so the country does not default on its debts next month.Greece has been relying on a €110 billion ($152 billion) package of rescue loans since May last year. In July, eurozone leaders tentatively agreed on a second €109 billion bailout that would also see banks and other private bondholders give Greece easier terms on its debt.However, the inspectors from the European Commission and the European Central Bank said Greeces debt dynamics remain extremely worrying. Even though the second bailout package would reduce Greeces financing needs in coming years, it could not suffice for the debt dynamics to be described as sustainable if implementation the reforms program remains weak, the report says.The International Monetary Fund, which is also a creditor and part of the so-called troika, will issue its report on Greeces efforts separately. The conclusions from the two other institutions, however, pile pressure on European leaders to agree at a key summit on Sunday to make private creditors like banks take bigger losses on the Greek bonds they hold.In the second bailout deal, private bondholders renounced on about 21 percent of the money they are owed. But even with those terms, Greeces debts would spiral to above 180 percent of economic output next year, European officials have said. To give Greece more relief, Germany and other rich countries want banks and other financial institutions to take losses of 50 or 60 percent on the bonds they hold, according to European officials.Debt sustainability has effectively deteriorated, given delays in the recovery, in fiscal consolidation and in the privatization plan, as well as the perspective of bank recapitalizations, the report noted. How to deal with Greece and how to contain Europes 20-months-old sovereign debt crisis will be the top issue at the meetings of finance ministers and leaders in Brussels this weekend.The report, sent to German lawmakers Thursday, said the reform efforts by the Greek government are very large, but targets for September appear to have been failed by a small margin. As Greeces economy keeps shrinking, its debt burden measured as a percentage of GDP keeps mounting, and no improvement appears to be in sight.The debt inspectors said Greeces recession is substantially deeper than previously projected as the country implements its austerity measures. Economic activity was 6 percent below its level a year ago in the first six months, they said, with the overall contraction for 2011 estimated to be a steep 5.5 percent.The deterioration of the economic activity will make policymaking more challenging, the report acknowledged. Given the scale of the required reforms, political coordination inside the government and consensus in the whole Greek society remain as essential and decisive as ever, it said.Greece was paralyzed on Thursday by the second day of a general strike against the harsh austerity measures already implemented. In Athens, protesters gathered by the tens of thousands outside the Greek parliament, ahead of a vote on intensely unpopular new austerity measures.Police said at least 50,000 people had flooded the square on the second day of a general strike that paralyzed the country, and more were arriving. Earlier, a communist party-backed union abandoned a bid to prevent lawmakers from entering parliament after riot police shut down main access roads.Though largely peaceful, Wednesdays massive protests in Athens was marred by attacks on police and public property.The austerity bill won initial approval in a first vote Wednesday night, and deputies are now to vote on the details, which suspending 30,000 public servants on reduced pay and suspending collective labor contracts.