NEWS,15.2.2012

Greece battling to save bailout package

Greek PM Lucas Papademos 

Greece's leaders battled to salvage a new 130-billion-euro ($170 billion) EU/IMF bailout today, rejecting doubts over their commitment to a punishing austerity package just hours before a conference call of euro zone finance ministers. But with mistrust of Athens high, several EU sources told Reuters that finance officials in the 17-state currency union were studying whether it was possible to delay part or all of the rescue deal while still avoiding a disorderly default - news which pushed safe haven German Bund futures to session highs. Finance Minister Evangelos Venizelos insisted that Greece would have clarified all outstanding issues on a 3.3-billion-euro package of cuts in time for a euro zone call scheduled for today, attacking critics in the zone for "playing with fire”. Greece’s conservative party leader Antonis Samaras, widely tipped as the country's next prime minister, pledged in writing that if elected he would stick to an agreed programme of welfare and job cuts that triggered riots in central Athens this week.” If New Democracy wins the next election in Greece, we will remain committed to the programme's objectives, targets and key policies," Samaras wrote. But Samaras, who leads voter surveys ahead of an election that could come as early as April, insisted the fast-shrinking Greek economy must also be kick-started into life and reserved the right to adapt details of the package accordingly.” Prioritising recovery along with the other objectives will only make the programme more effective and the adjustment effort more successful. Therefore ... policy modifications might be required to guarantee the full programme's implementation," he said in the letter to Greece's international lenders. Greece has said it must initiate a debt swap deal with private sector bondholders by Friday to meet a March 20 deadline for 14.5 billion euros in debt repayments. It was hoping to have the euro zone's backing for its second bailout this week. But EU sources said some in the euro zone doubted the commitment of Greece's leaders to austerity, and queried whether it would be enough to bring Greece's debt-to-GDP ratio down from 160% now to a target of 120% by 2020."There are proposals to delay the Greek package or to split it, so that an immediate default is avoided, but not everything is committed to," one official briefed on preparations for a euro zone finance ministers call later in the day.” They’ll discuss the options," he said, adding: "There is pressure from several countries to hold off until there is a concrete commitment from Greece, which may not come until after they've held elections.” Samaras' belated commitment to honour the austerity plan may put that plan on the back burner. The euro fell to its lowest in more than a week against the dollar and March Bund futures rose by as much as 60 ticks on the day to 139.12. The contract was last up 33 ticks up at 138.85.Venizelos earlier insisted there were "only a few remaining issues" to be resolved on the package of wage, pension and public sector job cuts lashed out at Greece's doubters.” There are now powers in Europe who are obviously playing with fire because they believe ... that not all requirements will be met, and who may even want Greece out of the euro zone," he told reporters in Athens.Rioters torched buildings across Athens late on Sunday as Greek lawmakers passed the austerity bill, of which around 325 million euros of cuts still need to be identified.But after a series of broken promises since Athens was first bailed out in May 2010, trust is in short supply."When you look at the internal political discussions in Greece and the opinion polls, then you have to ask who will really guarantee after the elections ... that Greece will stand by what we are now agreeing with Greece," German Finance Minister Wolfgang Schaeuble told SWR2 radio."I am also not yet sure that all political parties in Greece are aware of their responsibility for the difficult situation their country is in," Schaeuble said, adding the EU remained committed to helping Greece if it honoured its promises.While the outcome of today's conference call hangs in the balance, European Central Bank board member Joerg Asmussen said approval by the Eurogroup at regular talks next Monday would allow a sovereign debt swap to be completed in time."If the Eurogroup (of euro zone finance ministers) is able to make a positive political decision next Monday, the bond swap with voluntary PSI (private sector involvement) can immediately begin and be completed in time," .He further said in an emailed interview that while the ECB cannot contribute directly to the new Greek package, it could pass any profits from its sovereign bond purchases on to central banks in euro-zone states, which could then use it for Greece.Doubt had focused on Samaras, a strong critic of the austerity measures. He voted for the spending cuts but says the new round of austerity could plunge the country, already in its fifth year of recession, into an even bigger slump.” It’s true we are asking the Greeks for some extremely painful sacrifices and I understand their anger, but Greece has made many errors in its past," French Foreign Minister Alain Juppe told France Info radio on Wednesday.” It (the bailout) must be concluded because if Greece went bankrupt and left the euro zone, the chaos would be even worse for the Greek people and very bad news for the euro zone."The EU and IMF want Greece to account for every cent of budget cuts before they approve the rescue, which includes a bond swap, cutting the real value of private sector investors' bond holdings by some 70%.But Greece's downward economic spiral has accelerated, making it even harder to cut its mountainous debt. Data on Tuesday showed that the economy shrank by seven% year-on-year in the fourth quarter of last year, even more than the five% contraction of the third quarter. Greece is well on its way to suffering one of the biggest slumps of modern history. Output has contracted 16% from its peak in 2008 and the cuts will inevitably make that worse. Prime Minister Lucas Papademos has said that failure to back the bailout would consign Greece to economic catastrophe.