Greek Bailout May Have to Be $19.7 Billion Higher

Euro zone governments may have to provide up to 145 billion euros ($191 billion) to Athens under a second emergency loan program for Greece, EU sources said on Friday, 15 billion euros more ($19.7 billion) than previously expected.

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At the same time, Greece expects its 2011 budget deficit will be smaller than expected thanks to an emergency property tax, a finance ministry official said on Friday, a development that could help Athens in its bailout talks with the EU and IMF.

The extra funds from the bailout program are mainly required to help recapitalize the Greek banking sector once a deal is struck to write down the value of bonds owned by private-sector creditors, the sources said.

"It's mostly because of recapitalization needs of Greek banks due to PSI," one of the sources said, referring to what's called private sector involvement.

The other source did not say explicitly that 145 billion euros would be needed, but said that figure was the right order of size.

Negotiations with private sector creditors to take a 70 percent net-present-value writedown on their holdings, cutting Greece's debts by around 100 billion euros, are close to being concluded.

But it remains unclear how much of a writedown the official sector - the European Central Banks and national euro zone central banks - may have to take on their holdings of Greek government bonds in order to make Greece's overall debt burden sustainable.

The IMF says Greece's debts must be cut from around 160 percent of GDP now to 120 percent of GDP by 2020 in order to be sustainable.

The conclusion of PSI will help bring the debts close to 120 percent by 2020, but not all the way there.

As a result, there is expected to be a need for the official sector to take a hit, in addition to the extra funds from euro zone governments, the sources said.

Lower Deficit

Greece expects its 2011 budget deficit will be between 9.1 and 9.4 percent of GDP, the finance ministry official said.

Greece, which is racing to complete talks with the EU and the IMF on a second bailout, had previously estimated that the deficit would be above 9.5 percent of GDP.

"The numbers aren't final yet but we believe the deficit will come in at between 9.1 and 9.4 percent (of GDP)," the official, who declined to be named, told Reuters.

The official said the smaller deficit was due mainly to the fact that Greece will raise about 2 billion euros from a controversial property tax the government imposed in September in a desperate move to plug fiscal gaps.

That would beat a target of 1.7 billion euros.

A deficit of 9.1 to 9.4 percent of GDP would still be above initial EU/IMF targets but it might help Athens which, to secure the bailout, must persuade the European Union and the IMF - which have grown increasingly exasperated with its repeated failures to meet deficit and reform targets - that it will implement long-delayed reforms and slash spending further.

Another senior finance ministry official had said this week that the 2011 budget deficit would most likely be below 9.5 percent of GDP, but did not give more details.