Greek fiscal survival vital for euro zone: Finance Minister (Reuters)

ATHENS (Reuters) – Greece will stave off default not only for its own sake but because its survival is vital for the euro zone and the global economy, Greek Finance Minister Evangelos Venizelos told Reuters on Monday.

With help from its EU partners and fresh determination, the debt-ridden euro zone member will regain its fiscal sovereignty as soon as possible and aims to return to markets in the middle of 2014, as expected, the minister said.

"We will make it, because this is vital not only for Greece but for the stability of the whole euro zone and the global economy, because in Greece the stamina of the financial system is being tested," he told Reuters in the second part of an interview.

Appointed in a June 17 reshuffle and speaking after euro zone finance ministers approved on Saturday a critical, fifth tranche of a bailout loan to avert default, Venizelos said he was grateful to EU partners and vowed to fulfill his obligations.

He said he would redouble efforts to raise 1.7 billion euros ($2.5 billion) in privatizations by September, as agreed with the EU and the IMF who pulled Greece back from the brink of bankruptcy with a 110 billion-euro bailout a year ago.

Greece must deliver 50 billion euros in proceeds from a massive and complicated state selloff by 2015, including 5 billion this year. So far, in 18 months in office, the socialists have yet to launch any privatizations.

Amid the worst recession in nearly 40 years, good news for the economy comes from the tourism sector, which makes up about 15 percent of GDP. Revenues are seen rising by about 10 percent this year after a 25 percent slump in 2009-2010, Venizelos said.

"The data we have so far from the Tourism Ministry and the Bank of Greece are encouraging that it will be a good year. Revenues will rise by about 10 percent," he said.

A tough political veteran who has held several portfolios and prepared the 2004 Olympics, Venizelos took in his stride comments by Eurogroup chief Jean-Claude Juncker that Greece's sovereignty must be severely limited during the bailout program.

"Mr. Juncker is a great Philhellene (friend of Greece)," Venizelos said. "He doubtless wants to always help Greece and the euro zone overcome its problems and, primarily, to avoid systemic dangers.

"There is no doubt we have very tough fiscal limitations and we must restore our fiscal sovereignty as soon as possible through the successful implementation of our program," he added.

FOREIGN INSPECTORS

Venizelos denied suggestions foreign inspectors would be placed in ministries to check progress.

"There will be no inspectors," he said. "We can all resort to the knowhow and expertise of the EU and other member states. This does not mean inspectors will be posted or that responsibilities will be removed from the Greek parliament, the Greek government or the Greek public administration."

Venizelos said selloffs and the reform of the tax system were among his top priorities and that he would lay out a detailed plan to fight chronic tax evasion and improve tax collection, which has fallen behind target, next week.

Greece has 20 days from Saturday to set up a privatization body and Venizelos said he would unveil its board to fellow Eurogroup ministers on July 11.

"I will announce this after I complete discussions with the opposition on the 2-3 key people, because we need the widest possible consensus," he said.

The conservative opposition has opposed the bailout, drawing criticism from EU officials, but says it agrees with some parts of the privatization plan, raising hope some political consensus can be reached.

International lenders are working on a plan to provide Greece with an additional 110 billion euros to avoid default which could hit European banks and other lenders.

Asked about a warning by the S&P rating agency that banks' plans to roll over Greek debt could be seen as default, which drove down the euro on Monday, Venizelos said it was crucial that any model included the strictly voluntary participation of private lenders.

"As markets are strict and merciless, we want the format that results from the next program to have a shape that is accepted by markets and they react positively," he said.

(Editing by Peter Millership)

Euro ministers fail to clinch deal on Greek aid (Reuters)

BRUSSELS (Reuters) – Euro zone ministers failed on Tuesday to reach agreement on how private holders of Greek debt should share the costs of a new bailout, putting the onus on the leaders of Germany and France to forge a deal later this week.

Nervous markets pushed the bond yields of Greece, Ireland and Portugal to their highest levels since the introduction of the euro in 1999 amid uncertainty over a second rescue for Athens and the contribution governments are likely to demand from the private sector.

European paymaster Germany, backed by the Netherlands, wants the banks, pension funds and insurance firms that hold Greek debt to swap their bonds for new ones with maturities that are seven years longer.

This would buy Greece more time to chip away at its massive 330 billion euro ($477 billion) debt mountain and limit the amount of taxpayer-funded aid Athens would receive. But ratings agencies have warned they would view this as coercive and label it a default.

Fearful that Berlin's plan could unleash a new wave of contagion, the European Central Bank, European Commission and France are pushing for a softer solution in which bond owners would be encouraged, probably by incentives, to buy new Greek debt as their holdings matured.

"There has been no result," German Finance Minister Wolfgang Schaeuble told reporters after talks in Brussels ended late on Tuesday.

Schaeuble's counterpart from Luxembourg, Luc Frieden, said ministers had narrowed their differences and their goal remained to seal an agreement later this month.

"We have to be very careful that this is not considered to be a 'credit event', to be very careful that this does not lead to a rating downgrade. It's only under these strict limitations that we can move toward private sector involvement," he said.

Discussions within the so-called Eurogroup were due to continue on Sunday evening in Luxembourg, ministers said.

To avert financial disaster for Greece, the bloc must forge a compromise by a June 23-24 EU summit.

But investors will be closely watching a meeting in Berlin on Friday between Chancellor Angela Merkel and French President Nicolas Sarkozy, where the outlines of a final deal could be sketched out.

DEAUVILLE DEAL

Merkel and Sarkozy have forged compromises on several contentious issues since the bloc's debt crisis erupted in late 2009, notably a controversial deal sealed last year on the beach in Deauville, France which spelled out for the first time that investors would be asked to shoulder the costs of future euro zone bailouts from mid-2013.

Since then opposition to taxpayer-funded rescues has grown, especially in northern European countries like Germany, Finland and the Netherlands, forcing leaders to consider pursuing soft forms of debt restructuring even sooner, despite repeated warnings from the ECB.

"Somebody has to concede ground over the coming days or the region will experience a full-blown financial crisis," said David Mackie, an economist at J.P. Morgan.

"Given that the Germans and the French are on opposite sides in the restructuring debate, if the two leaders can reach a compromise then it will carry for the region as a whole."

In a sign of just how far worries about the euro zone have spread, China's central bank used its annual financial stability report to sound one of its starkest warnings yet about Europe's debt mire, saying rescue measures had failed to tackle the root causes of the crisis.

"There is a possibility that the sovereign debt crisis will spread and deteriorate," the report said.

The European Union and International Monetary Fund bailed out Athens to the tune of 110 billion euros ($160 billion) just over a year ago, and followed up with similar packages for Ireland and Portugal.

A new rescue is now being thrashed out for Greece as it continues to sink under a debt pile that totals roughly 150 percent of its annual output.

Officials in Brussels say the new deal would keep Greece funded through 2014 and total about 120 billion euros, comprising 60 billion euros in new EU/IMF aid and an equal amount from a combination of privatization receipts and private sector contributions.

VIENNA INITIATIVE

Mario Draghi, who is due to take over as president of the ECB later this year, reiterated at a European Parliament hearing that the central bank remained opposed to any private sector solutions that contained any element of compulsion.

But he signaled the ECB could accept a debt rollover based loosely on the "Vienna Initiative" in which foreign banks agreed, at the height of the global financial crisis in 2009, voluntarily to maintain their exposure to central and eastern Europe.

"There are basically two initiatives that are under discussion. One is the Vienna Initiative, which to me looks entirely voluntary," Draghi said. "Another one is a debt exchange, which I haven't understood whether it is voluntary or it could end up being involuntary."

Standard & Poor's downgraded Greece on Monday, making it the lowest-rated sovereign borrower in the world.

The Greek government is trying to push through new austerity measures worth some 6.5 billion euros for 2011 alone, almost double the belt-tightening already agreed for this year.

But Prime Minister George Papandreou suffered a blow on Tuesday when two ruling party lawmakers said they would vote against the measures.

Protesters have said they will cordon off parliament to prevent deputies from debating the plans on Wednesday and unions are vowing to bring the country to a standstill with a national strike.

(Additional reporting by Jan Strupczewski in Brussels and Michael Winfrey, Lefteris Papadimas, Harry Papachristou and George Georgiopoulos in Athens)

(Writing by Noah Barkin, editing by Tim Pearce)

Greek assembly faces protest cordon over austerity (Reuters)

ATHENS (Reuters) – Greek demonstrators prepared to cordon off parliament and unions to strike on Wednesday in protest at the Socialist government's efforts to approve a fresh round of austerity for the debt-stricken euro zone state.

Prime Minister George Papandreou must push through a new five-year campaign of tax hikes, spending cuts and selloffs of state property to continue receiving aid from the European Union and International Monetary Fund and avoid default.

He not only faces daily protests and resistance from a conservative opposition that has surpassed his Socialist party in opinion polls, but backbenchers in his own parliamentary grouping are also threatening to reject the plan.

Tens of thousands of grassroots activists and unionists vowed to converge on Athens' central Syntagma square on the assembly's front steps on Wednesday as Papandreou's PASOK party discusses the measures and opens talk on them in committee.

The new deal foresees 6.5 billion euros ($9.4 billion) worth of tax hikes and spending cuts this year, almost doubling steps already agreed with bailout lenders that have raised the jobless rate to a record 16.2 percent and deepened a recession.

The government has appealed for national consensus on the laws, on which the EU and IMF have conditioned the release of another 12 billion euros in aid next month that Athens needs to pay off maturing debt.

"Every Greek, particularly the new generation, demands that we fight the battle with all our power, a battle to avoid a disastrous bankruptcy which will undermine the future of the country," government spokesman George Petalotis told reporters.

"We are fighting the battle to serve the common good, in the most crucial moment in the country's modern democracy."

Among other items, the mid-term plan includes new luxury taxes, a proposed crackdown on rampant tax evasion, increased taxes on soft-drinks, cars, swimming pools and real estate for a total savings of 28 billion euros through 2015.

It also entails cutting the eastern Mediterranean state's 750,000-strong public work force by a fifth over that period and raising 50 billion euros by selling off state-owned firms.

"CRUEL AS A TIGER"

Euro zone finance ministers, aiming to finalize a second aid deal at a June 23-24 summit, are pressing ahead with plans to make private creditors share the costs of a second bailout, although the European Central Bank opposes the plan and says it could shock global markets and put weaker euro states at risk.

PASOK has a majority in parliament and is expected to push through the deal by the end of the month as planned, possibly with a handful of opposition deputies voting for it as well.

But one PASOK deputy defected from its parliament group on Tuesday, cutting its numbers to 155 of the chamber's 300 seats, and another deputy said he would not back the package.

"You have to be as cruel as a tiger to vote for these measures. I am not," George Lianis said in a letter to Parliament Speaker Filippos Petsalnikos.

Many others also oppose the plan. Public sector union ADEDY, representing half a million workers, said it would join other demonstrators in peaceful protest. Trains were to stop, ports close and hospitals cut staffing. Airports will stay open.

"The VAT increase to 23 pct from 13 pct on restaurant businesses is an act of suicide," the GSEVEE small business association said in a letter to Papandreou.

Passing the plan will be the first step, to be followed by another set of laws on how to implement it. Analysts said that the plan was likely to make it into law despite all the hurdles.

"I think it will go through -- but just," said Yanis Varoufakis, an economics professor at the University of Athens.

(Writing by Michael Winfrey; editing by Mark Heinrich)

Banks warm to role in Greek bailout (Reuters)

FRANKFURT (Reuters) – Germany's bank association on Saturday backed government proposals to get private creditors involved in the cost of a second bailout for Greece, although it was not clear if the banks favoured a controversial bond swap.favored Berlin is pushing hard for commercial banks to contribute to the cost of the estimated 120 billion euro ($172 billion) deal, but has not yet convinced the European Central Bank and ratings agencies that this can be done without triggering a credit default.

Officials say the ECB argues that a swap, favored by German Finance Minister Wolfgang Schaeuble, could be judged a default and make Greek bonds unacceptable as collateral, potentially leading to a collapse of the Greek banking sector.

German Private Banking Association (BdB) Managing Director Michael Kemmer told a radio interviewer: "What Herr Schaeuble has proposed is in principle not unreasonable. Our members would also participate."

It was not clear if that meant he supported a swap or merely the idea of private creditors becoming involved.

But his comments also followed signs that French banks were agreed in principle to some form of rollover of Greek debt on condition that all creditors do the same.

Schaeuble urged parliament on Friday to back additional aid for Greece but said the banks' participation in a new package was "unavoidable" and that he favored a swap that would push out Greek debt maturities by seven years.

The head of the Eurogroup of euro zone finance ministers, Jean-Claude Juncker, aligned himself with Berlin, but said any solution must be agreed with the ECB.

"I am of the opinion that there will have to be a contribution from private creditors. There must be a voluntary, soft restructuring," he told Germany's Inforadio.

"We cannot push this private creditor participation through without the European Central Bank, or against it."

Asked how such participation could be arranged and kept voluntary, he said: "We are discussing it."

RISING COST

Euro zone official sources told Reuters on Thursday that the new international bailout being put together for Greece was likely to total around 120 billion euros, instead of the 90 billion euro figure previously suggested by officials.

Asked about the 120 billion euro figure, Juncker said: "The figures being floated in public are, in their totality, correct ... I do not believe, however, that euro zone states will have to come up with this sum alone."

Getting the banks to contribute will help Europe's politicians sell the idea to their electorates of giving Greece yet more money.

German Chancellor Angela Merkel went on the stump for the bailout in a weekly podcast on Saturday.

She said the debt crisis could threaten Germany's economic recovery if further action was not taken.

"We should not do anything that would endanger the global recovery and put Germany back in danger," Merkel said, pointing to the bankruptcy of investment bank Lehman Brothers in 2008, which triggered the global financial crisis and recession.

"We should not simply allow the uncontrolled bankruptcy of a state -- instead we must see how we can increase the competitiveness of countries in difficulty and give them the chance to work off the debt," she said.

Part of the poker game is convincing the banks involved that it is in their interest to take on future Greek debt in aid of avoiding a full-scale default on existing loans.

Much of the money could come from Greek banks, who have been shut out of funding markets and are dependent on the ECB or other official sources of liquidity for their survival.

The BdB had previously taken a stiff line, saying that German banks' involvement -- previously planned only for after 2013 -- was a "last step" and that that point had not been reached.

Kemmer reiterated that the participation of private creditors should only be on a voluntary basis but that a "disorderly" default for Greece must be avoided.

"In principle, it is correct that the investor who is holding the paper, which is filled with risks, has to attend to those risks too," he said.

"We cannot afford to have a further crisis of confidence. On top of that, it is not only the banks that are affected ... A disorderly default could also affect life insurers and old age pension payments."

(Additional reporting by Brian Rohan, Marilyn Gerlach and Jan Strupczewski; writing by Patrick Graham; Editing by Kevin Liffey)

Greek ministers approve new austerity measures (AP)

ATHENS, Greece – The Greek Cabinet on Thursday approved and submitted to Parliament a new round of painful austerity measures and a euro50 billion ($73 billion) privatization drive that are essential for the debt-ridden country to continue receiving funds from its international bailout.

Greece is lagging behind with reforms promised in return for last year's euro110 billion ($160 billion) package of rescue loans from its European partners and the International Monetary Fund. Fellow eurozone governments have warned that if the country does not enforce new austerity, it will be cut off from aid.

Without the next euro12 billion installment from its rescue loans due in July, Greece, which remains stuck in recession and locked out of international bond markets, will default on its massive debts.

Finance Minister George Papaconstantinou said the plans were submitted to Parliament shortly after their approval.

"The medium term framework includes interventions to achieve a deficit of 7.5 percent of GDP (gross domestic product) in 2011, and broader interventions to reduce the deficit below 3 percent of GDP by 2014, and around 1 percent for 2015," he said. "It also advances the broader privatization program."

No specific date has been set for a vote, but Cabinet officials said they expected it to be held before June 28.

The governing Socialists hold a six-seat majority in the 300-member legislature, but many party backbenchers have strongly criticized the new austerity plan — which follows a series of pension and salary cuts last year, accompanied by increases in taxes and retirement ages.

However, none of the disgruntled Socialist lawmakers have openly threatened to vote against the measures.

Once the package is approved, the government will table supplementary legislation on its precise implementation. Officials say both pieces of legislation must be ratified before Greece can receive the next installment of the EU and IMF loans.

The new plans include a remedial euro6.4 billion ($9.4 billion) package of cuts and tax hikes for this year, a renewed euro22 billion ($32.15 billion) austerity drive for 2012-2015 and the privatization program. Officials said all Greeks earning more than euro8,000-10,000 annually will be charged an extra tax worth up to 3 percent of their income every year for the next four years, while the sales tax on restaurants and bars will increase to 23 percent from the current 13 percent.

Civil servants and pensioners will suffer more income cuts, while health, education, defense and social spending will be further curtailed.

"We have sought and we have found the fairest possible solution" in the new austerity cuts, Prime Minister George Papandreou said, according to another Cabinet official who was reading from a text of the premier's remarks.

Eurozone finance ministers meeting in Brussels on June 20 and EU leaders gathering on June 23-24 are to discuss Greece's situation.

"We expect the Greek parliament to approve the measures put forward by the Greek authorities in the last review of the troika, so that the euro area finance ministers can take this into account when they decide on the next disbursement," Amadeu Altafaj-Tardio, a spokesman for the EU's Monetary Affairs Commissioner Olli Rehn, said in Brussels shortly before the Cabinet approval.

The pressure on Papandreou and his government is greater than ever, with the country's international creditors calling for cross-party support for the bailout program and openly criticizing the slow pace of reforms.

"After a strong start in the summer 2010, reform implementation came to a standstill in recent quarters," the European Union, the European Central Bank and the International Monetary Fund wrote in a summary of their recent assessment of Greece's efforts. The Associated Press obtained a copy on Thursday.

The three institutions, known as the troika, also cited "political risks" to the implementation of the budget cuts and privatization program in their findings, which were circulated among eurozone finance ministers Wednesday.

Those "doubts on the ability and the willingness of the Greek government and society to persevere in fiscal consolidation, and in restoring competitiveness" are the main reason Greece likely won't be able to access financial markets again next year, leading to serious financing gaps, the troika concluded.

In the first quarter, Greece's GDP shrank 5.5 percent from a year earlier, the national statistical agency said Thursday. The troika now expects Greece's economy to shrink by 3.8 percent in 2011, worse even than the 3.5 percent recession the EU predicted only in May.

Without the additional measures this year, Greece's budget deficit would remain above 10 percent of economic output, the troika said, way off the 7.5 percent target set out in the program.

The Finance Ministry said the measures would bring the national debt down to 139.5 percent of GDP by 2015, as opposed to a suffocating projected 198.9 percent if no measures were taken.

In addition to the recession, the crisis has led to significant job losses, with unemployment in March reaching 16.2 percent, the highest since monthly data began to be released in 2004.

The protracted pain, with little prospect of respite visible on the horizon, has prompted a series of strikes and protests.

Workers at Greek state-run companies walked off the job Thursday to protest the government's privatization plan, which they fear will lead to further job and salary cuts.

Under the slogan "we won't sell," they marched through central Athens.

Public transport workers walked off the job in the early morning and late evening, while port workers, post offices and banks called a 24-hour strike. Television station technicians were also on strike, as were journalists at the state-run broadcaster, disrupting live news programing. A general strike has been called for June 15.

Angry Greeks have taken over the central Syntagma Square, setting up a tent city in a sit-in. Tens of thousands of people thronged the square, which lies in front of Parliament, last Sunday.

A few hundred were there late Thursday, blowing whistles and chanting "Thieves, thieves."

____

Elena Becatoros in Athens, Gabriele Steinhauser in Brussels and Juergen Baetz in Berlin contributed.