By NBF News

Greece's economy may crumble without $40bn in emergency aid

Greece has begun talks with the European Commission and International Monetary Fund (IMF) over the terms of emergency bail-out aid.

The talks cover austerity measures Greece must take during the next three years to reduce its debt mountain.

If all sides can agree the measures it should help clear the way for a quick payout of up to 40bn euros on offer from eurozone members and the IMF.

But many observers say it is a case of “when” not “if” Greece needs the aid.

In a statement on Tuesday, Greece's finance ministry, said: “The discussions concern a three-year programme of economic policies… which can be supported with financial assistance from eurozone members and the International Monetary Fund should Greek authorities decide to request the activation of the mechanism.”

The talks, expected to last 10 days, will discuss the precise terms, conditions, and interest rates that would apply if Greece asks for the aid.

The eurozone partners have agreed of offer rescue finance of up to 30bn euros ($40bn; £26bn), with the IMF offering a further 10bn euros.

But speculation persists that even this might not be enough. On Tuesday, Axel Weber, a member of the European Central Bank governing council, denied reports that Greece might need as much as 80bn euros to avoid default.

Greek borrowing costs hit a 12-year high on Tuesday as investors demanded a higher return for lending the government money it needs to repay its debts.

Athens raised almost 2bn euros by selling three-month Treasury bills. However, although the fund-raising was successful the interest rate was 3.65%, more than twice the level at which Greece raised similar short-term funds in January.

Greece has said its priority is to raise much-needed funds on the financial markets. But the higher the yield on Treasury issues, the bigger Greece's debt-burden becomes.

The country needs to raise about 11bn euros by the end of May, and about another 35bn euros during 2010 to pay its bills, such as public service pensions, and to finance structural reforms.