The European Union is racing to draft a second bailout package for Greece to release vital loans next month and avert the risk of the euro zone country defaulting, EU officials said on Monday.
I am quite optimistic, the chairman of euro zone finance ministers, Jean-Claude Juncker, said after discussing further aid for Athens with French President Nicolas Sarkozy in Paris.
A total restructuring of Greece's massive debt was not an option, he said, leaving the door open to some tweaking of Greece's debt profile that might involve the private sector, as Sarkozy advocated last week.
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 essential to secure any further assistance.
You want to raise taxes and raise consensus with us, who have set reducing taxes as a priority? Don't even think about it, opposition New Democracy leader Antonis Samaras said.
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 euro ($158 billion) rescue package from the EU and IMF last May but has since fallen short of its deficit-reduction goals, raising the risk of default on its 327 billion euro debt -- 150 percent of its economic output.
The tax cuts sought by the opposition could aggravate a revenue shortfall which a troika of EU/IMF inspectors found on a review mission in Athens, due to be concluded this week.
Samaras says the cuts are essential to revive the economy, but government spokesman George Petalotis poured cold water on the idea and said there were no grounds for fresh talks with the opposition in the near term.
We would like to tell people that we will reduce taxes and tax rates, he said. But if we do this, we might not have the needed results. And we cannot put our targets at risk.
EU officials said a new 65 billion euro package could involve a mixture of collateralised loans from the EU and IMF, and additional revenue measures, with unprecedented intrusive external supervision of Greece's privatization programme. It would require collateral for new loans and EU technical assistance -- EU involvement in the privatization 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 rumors, 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-old debt crisis.
Mass unemployment and wage and benefit cuts due to the EU/IMF austerity plan have triggered spontaneous youth protests in Greece as well as a series of one-day strikes by powerful trade unions.
Weekend comments by Ireland's transport minister that Dublin too may need a second rescue fueled alarm about further bailouts among lawmakers in Berlin, the Hague and Helsinki.
But Finance Minister Michael Noonan on Monday categorically ruled out any need for a top-up next year to the 85 billion euro bailout Ireland received last November, and said Dublin still aimed to tap the markets in late 2012.
There is no question of a bailout package having to be brought in next year, he told state broadcaster RTE. We have sufficient money from the IMF and European institutions to carry the country forward in all eventualities and the programme runs until the end of 2013.
Uncertainty over whether Greece will receive the next 12 billion euro aid tranche required to meet 13.4 billion euros in funding needs in July continued to rattle financial markets.
The Greek 10-year bond spread over safe haven German Bunds rose by 20 basis points to 1,387. Two-year yields were up 58 bps to 26.23 percent.
The European Central Bank for its part continues to oppose any attempt by EU politicians to restructure Greece's debt mountain, even by asking investors to accept a voluntary extension of bond maturities.
ECB board member Lorenzo Bini Smaghi said in an interview published on Monday the idea that debt restructuring could be carried out in an orderly way was a fairytale, saying it was the equivalent of the death penalty.
Euro zone governments are actively studying options for a reprofiling by changing the maturities on Greek debt, officials say, although German Finance Minister Wolfgang Schaeuble acknowledged last week that it was very high risk.
The Eurogroup is doing research for reprofiling -- what can you do on reprofiling? Is it possible without a credit event? Dutch Finance Minister Jan Kees De Jager told reporters on Saturday in Cyprus. It's an investigation, and we have to wait for the outcome of it.
EU officials contend that Greece could do much more to help itself by selling off a treasure trove of state assets.
ECB executive board member Juergen Stark told Welt am Sonntag newspaper that Athens could raise as much as 300 billion euros from privatizing state property.
Greece currently aims to raise 50 billion euros from privatizations by 2015 to help stave off a fiscal meltdown, but the country lacks a proper land registry and ownership of many potentially lucrative assets is legally uncertain.
(Additional reporting by Angeliki Koutantou, Renee Maltezou and Ingrid Melander in Athens, Marius Zaharia in London, Luke Baker in Brussels; writing by Paul Taylor, editing by Mike Peacock/ Patrick Graham/Susan Fenton)