Greece asks for talks, closer to aid request

In a letter to the European Union, the European Central Bank and the IMF, Finance Minister George Papaconstantinou proposed discussions on a multi-year program of economic policies.

He said this could be supported with financial assistance from the euro-area member states and the IMF, if the Greek authorities were to decide to request such assistance.

The IMF announced it would send a team to Athens on Monday, which a Greek government official said would be accompanied by teams from the European Commission and the ECB.

Greek and IMF officials stressed that Greece, struggling to finance a national debt greater than its annual economic output, had still not decided whether to apply to activate an emergency aid mechanism announced by euro zone governments last Sunday.

But IMF spokeswoman Caroline Atkinson said the IMF team would focus on Greek policies that could form a basis for loans.

When we're discussing with them the policies that could form the basis, at a certain point that could mutate into a discussion for the (financial) arrangement, she said. She added the IMF could work quickly, but declined to give a timeframe.

A senior IMF official, speaking on condition of anonymity, said Greece had expressed interest during preliminary talks in a three-year precautionary standby agreement, which it would tap only when needed.

The official said European financing, part of a joint aid package, would have to be assured to trigger IMF funding. The Europeans had made it clear that IMF funding should not exceed one-third of any total Greece package although details of financing had not yet been discussed, the official added.

The joint IMF and European mission to Greece from Monday should last about 15 days and any agreement would be finalized shortly afterward by the IMF board, the official noted.

Under the aid mechanism, euro zone governments would lend Greece up to 30 billion euros in the initial year and the IMF would provide more money, perhaps 10 billion euros or more, in what could be the biggest international bailout ever attempted.

Analysts said Greece, which is being forced to pay sky-high borrowing rates in the markets and will need to refinance 8.5 billion euros of bonds maturing in May, appeared to be inching toward seeking emergency loans.

The fact that they are asking for clarification on various issues about the mechanism suggests that they are seriously considering activating the package, said Ben May, an economist at Capital Economics in London.

At a cabinet meeting, Greek Prime Minister George Papandreou said his country's debt crisis has created psychological terrorism in our economy and among Greek citizens and we have to deal with that. We must ensure safety and confidence.

GREEK ASSET PRICES

News of the request for talks halted a slide in Greek asset prices on Thursday.

Greek bank stocks jumped more than 4 percent and the spread of the 10-year Greek government bond yield over German Bunds fell back to 4.07 percentage points, flat on the day, from an earlier level of 4.35 points. It was still not far from the record high during the crisis of 4.63 points, hit last week.

The markets know that even if Greece does obtain emergency aid, it may still face several years of economic pain and instability as austerity measures worsen its deep recession.

Euro zone governments have said they would extend three-year emergency loans at a rate of about 5.0 percent, cheaper than the current yield of 7.0 percent on Greek three-year bonds. Atkinson said any IMF aid to Greece beyond roughly 3 billion euros would carry an interest charge of 3.26 percent.

Strict conditions for Greece to slash its budget deficit over several years would be attached to the loans.

But any decision to provide the euro zone loans would have to be made unanimously by all 16 governments in the zone, and markets worry that Germany, where public opinion is strongly against helping Greece, might block or delay the aid.

EU Economic and Monetary Affairs Commissioner Olli Rehn said on Thursday that he was confident Germany would step in to help if needed, adding: there will be no default by Greece.

But billionaire financier George Soros said the euro and the EU itself would be at risk of breaking up if Germany refused to play its traditional role binding the region together.

The Germans have always made the concessions needed to advance the European Union, when people were looking for a deal. Not any more, Soros told Corriere della Sera in an interview published on Thursday.

EURO ZONE TO MEET

Euro zone finance ministers were due on Friday to start two days of meetings in Madrid that would discuss Greece's economic plight, as well as ways to improve coordination of economic policies in the zone and reduce the wide economic imbalances that contributed to the Greek crisis.

Jean-Claude Juncker, who heads the group of finance ministers, said the EU might have to reform its core treaty to prevent new fiscal crises.

We have resorted to these loans (for Greece) because there was no other solution within the European Treaty, Juncker was quoted as saying by Spanish newspaper Expansion.

For the future we will have to install a European mechanism without allowing some member states to relax and not balance their books.

In an effort to improve its fund-raising by broadening its investor base, Greece has said it intends to sell a U.S. dollar bond and conduct a roadshow for U.S. money managers. The markets think such a bond might raise around $2 billion or $3 billion.

Morgan Stanley will serve as lead underwriter for the dollar bond sale, which will start with a roadshow sometime after April 20, a source close to the deal told Reuters on Thursday.

(Additional reporting by Tim Heritage, Nigel Tutt, Marcin Grajewski Marc Jones, Jan Strupczewski, Lesley Wroughton and Emily Kaiser)

(Editing by Andrew Torchia & Theodore d'Afflisio)