BRUSSELS, BELGIUM

GREECE’S private creditors may be asked to give the struggling country more time to repay its debts, the European Union’s (EU) top economic official said yesterday, marking an important shift in the region’s attitudes towards solving the crisis.

Until this week, European officials had denied that extending debt repayments had even been discussed, for fear of undermining market confidence. But many investors are convinced a change in Greece’s debt deals is inevitable at some point.

“A voluntary extension of loan maturities could… be examined” together with asking banks and other investors to maintain their exposure to Greece, the EU’s Monetary Affairs Commissioner Olli Rehn told journalists after a two-day meeting with European finance ministers.

Before any such move is considered, however, Rehn said the Greek government was expected to announce in coming days new spending cuts and reforms to ensure it can lower its budget deficit to the targets set out in its bailout programme.

At its current rate, Greece is expected to post a budget deficit of 9.5 per cent this year, more than three time’s the EU’s limit and two percentage points above what it promised a year ago.

To meet those targets, Greece needs to step up its 50 billion-euro (US$71-billion) privatisation programme, selling at least 15 billion-euro worth of national assets in companies and real-estate holdings this year and next, Rehn said.

Jean-Claude Juncker, the premier of Luxembourg who chairs the meetings of eurozone finance ministers, said Monday that privatisations will have to be made beyond what was previously planned.

Greek Prime Minister George Papandreou promised to push through the privatisations, which he said could cut the country’s crippling debt by up to 20 percentage points.

“We will undertake any additional policy measures necessary to ensure that we meet the original fiscal targets we set in 2011,” he added.

Speaking at a conference at a resort near Athens, Papandreou pledged to cut the bloated civil service by 150,000 people by 2015, through not replacing retirees and voluntary redundancies “where necessary”.

He said his immediate priority was to achieve a primary surplus. “And I will do whatever it takes to achieve that.”

The increasingly loud criticism of Greece — and a gradual admission that private creditors will have to share some of the pain of the country’s financial problems — comes more than a year after it was granted 110 billion in rescue loans from other eurozone nations and the International Monetary Fund.

Eurozone finance ministers have started discussing a second bailout, as it has become clear that Greece will need more money over the next two years. However, they won’t sign off on any new funds without new commitments from the country.

Greece’s debt is expected to top 166 per cent of economic output by the end of 2012, way above any other eurozone state. Few economists believe that it will ever garner the necessary economic strength to pay them off and warn that even a maturity extension and more bailout loans will likely not be enough.

Rehn reiterated his call for Greece’s warring political parties to put aside their differences and focus on getting their country back on track — a demand that was quickly rejected by Greece’s opposition leader.

No more help will be coming from the EU unless there is firm backing of new reform measures from all parties, Rehn warned.

“It is possible for Portugal and Ireland, why not for Greece?” he asked, referring to the other two eurozone countries that have been bailed out and where current and former opposition parties have had to swallow measures they originally opposed.

A mission of experts from the EU, the European Central Bank and the IMF currently reviewing the implementation of the bailout programme will stay in Athens for at least an extra week, giving them the chance to weigh any new proposals. The mission was originally supposed to end this week.

Adopting more reform won’t be easy for Greece’s embattled Socialist prime minister. Conservative leader Antonis Samaras yesterday called the government’s current austerity plan “demonstrably wrong” and “harmful for the country” and said he would not support it or any extra measures despite signing up for the budget targets set out in the programme. The conservative has in the past backed only small parts of the government programme, including its privatisation drive.

The EU’s admission that there may be some limited private sector involvement in solving Greece’s crisis represents an important turnaround. Officials had until this week vehemently excluded even mild changes to Greece’s debt terms, such as extending bond maturities.

Yesterday Papandreou again ruled out a debt restructuring.

“I know that analysts are talking about (restructuring) and many people have already discounted it,” he said. “But we — the Greek government, European institutions, the other Eurozone countries — all continue to believe that the costs far outweigh any potential benefits.”

However, most analysts said that while getting more time to repay may give the country some breathing space over the coming years, it won’t fundamentally change its destiny — partly because it’s unlikely that enough private creditors will sign up for the initiative.

John Higgins, an analyst at Capital Economics in London, wrote that while the immediate impact on private creditors of a maturity extension may be limited, it may have far-reaching consequences by further undermining investors’ belief that they will be paid back in full.

Greece remains blocked out of raising long-term debt on capital markets due to high interest rates, the result of investors’ lack of confidence in the country. It has periodically issued short-term bonds in order to keep a presence in the market.