http://www.telegraph.co.uk/finance/financialcrisis/9090856/Greek-rescue-threatens-eurozone-structure.html
Greek rescue 'threatens eurozone structure'
Greece's pending debt rescue could fundamentally change the financial mechanics of the eurozone and result in tighter fiscal union, a leading economic think tank has warned.
European leaders are working through the weekend to finalise the details of a second €130bn (£108bn) bail-out package for Greece, ahead of a key meeting on Monday.
A conference call is expected to be held on Sunday by finance ministry officials from the 17 eurozone countries.
If the package is adopted, Greece's finances will be placed under stringent watch to ensure it delivers deep cuts and meets loan requirements.
The respected Ernst & Young ITEM Club said: "This could be the template for a future European fiscal union."
Marie Diron, economic advisor to the ITEM Club, said: "In practice countries will watch closely over the finances of others, ensure laws are passed and implemented, and corrective measures can be taken to avoid future debt contagion between member states."
This follows the US model of inter-state lending.
Ms Diron aded: "The IMF can help from its independent viewpoint and play referee. Oversight of each country's public finances would require trust, but create a system of transparency and avoid any nasty suprises."
This scenario became more likely on Friday when Germany signalled finance ministers may be ready to back the rescue plan, which is to be discussed at 3.30pm on Monday by the eurozone countries, the European Central Bank (ECB), the International Monetary Fund (IMF), and private sector creditors.
Chancellor Merkel's government indicated its determination to avoid separating the timetable of the aid from the writedown of Greek debt to private bondholders, and agree to the deal as one package.
The sands of time run out on March 20 when debt-laden Greece must pay €14.5bn or trigger sovereign insolvency – the first of its kind in the 13-year history of the single European currency.
But last-minute adjustments are under way following rumours that the IMF will contribute less to this second Greek rescue package than originally planed.
IMF members, fearful of its exposure to the European debt crisis, are expected to announce a smaller contribution.
The global fund is now set to provide just €13bn of the €130bn aid. Eurozone countries will need to find nearly €120bn.
The ECB also exercised caution on Friday and swapped old Greek bonds with new ones to provide protection from a forced writedown on the value of the bond holdings in the impending restructuring.
Other last-minute tweaks include lowering interest rates on private sector loans to Greece to help reduce the country's debt to a manageable level.
Ms Diron said: "Financial markets are slowly coming round to the idea that maybe they are in a better position to cope if Greece defaults. They are now thinking that perhaps it wouldn't be such a disaster. But in reality this would be disruptive. If Greece were to go, you would have to assume that Portugal would be next on the list."
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