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ATHENS : Greece was again at the eye of a storm over debt on Tuesday with rampant talk of a second rescue or restructuring, and a warning that a Greek "disaster" would hit the entire eurozone.
Experts from the European Union and International Monetary Fund began an audit of finances and reforms in Greece to determine if it merits a critical new slice of rescue funding.
This was just as a top official at the European Central Bank (ECB) warned that debt default or restructuring would hit the entire eurozone.
A restructuring would put Greece's banking system "on its knees," Lorenzo Bini Smaghi told the Italian daily La Stampa.
Smaghi, who sits on the ECB executive board, warned of "the contagion that a Greek disaster would inflict on the rest of the eurozone."
The bailout for Greece, put in place a year ago as the result of a deep rethink by EU policy makers and some U-turns by the ECB, involves loans of 110 billion euros (US$157 billion) over three years.
The audit, although routine, is followed with trepidation in Greece because each such probe leads to recommendations and conditions for the next slice of aid.
Greece is struggling to meet its deficit-reduction targets because of a deeper-than-expected recession, and the next 12-billion-euro loan instalment is crucial to its finances.
Smaghi issued his warning the day after credit rating agency Standard & Poor's hit Greek debt with a severe two-notch downgrade, saying there were strongly rising signs that Greece could not escape a restructuring which would mean big losses for investors who had lent it money.
Senior EU and Greek officials have denied that any restructuring is on the agenda, although eurozone officials have begun to admit that Greece is likely to need more aid in some form.
"The process of (Greek) internal reforms has slowed down... and we find ourselves one year on having to re-adjust the programme to have more guarantees," Smaghi acknowledged.
The rescue for Greece, a year ago, was the first of three bailouts, covering also Ireland and now Portugal, and the renewed strain over the Greek debt mountain is seen as another severe challenge for the credibility of the eurozone. Ireland has said it wants to renegotiate its rescue terms.
The finance ministry in Athens said that the EU-ECB-IMF team would stay for at least a week.
At the time of the last such regular audit in February, experts said that Greece had to accelerate a programme of privatisation to raise 50 billion euros by 2015.
On Monday, the governor of the Greek central bank, George Provopoulos, urged the government to accelerate privatisation to correct "deviations and delays."
At the weekend, the head of the Eurogroup of eurozone finance ministers Jean-Claude Juncker said that "we think that Greece does need a further adjustment programme".
And an EU source told AFP on Monday that eurozone ministers were considering extra help for next year.
There is also growing cacophony in Europe over Greece, with the head of the Austrian central bank chief suggesting a rescheduling of Greece's official loans from the EU and IMF.
"It needn't be that new loans are made available," said Ewald Nowotny, who also sits on the ECB governing council.
"It can also be an issue of timescale, by when these things must be paid back," he told Austria's Oe1 public radio.
However even a rescheduling of the aid loans could rattle markets as Standard and Poor's evoked the possibility the EU would insist private bondholders accept similar delays.
Nowotny also hit out at finance ministers from major eurozone countries who tried to hold a secret meeting last Friday, which ratcheted up tension on markets after reports they would discuss Greece's exit from the eurozone.
The reports about Greece leaving were denied, but the meeting did take place.
He said the meeting was an "improvised" affair, was "very unfortunate" and would have "negative effects".
- AFP/ir
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