Greek PM eyes new 110-billion-euro bailout

24th June 2011, Comments 0 comments

Greek Prime Minister George Papandreou said Friday he is negotiating a new bailout worth some 110 billion euros ($155 billion), as Europe enters a crucial 10-day period in the euro crisis.

Greece is at the centre of a storm threatening financial markets, the unity of Europe's 17-nation currency area, and even the EU -- with the United States warning of a potential to drag down world economic recovery.

"We are talking about a huge, huge amount," said Papandreou, after formally requesting the second rescue at a two-day European Union summit in Brussels.

While he said it was "too early to give a precise amount," the final sum would be "similar to the first aid package" in May 2010, although that was not enough to prevent the government in Athens slipping ever deeper into the red.

The actual size, Papandreou admitted, "depends on the participation of the private creditors," those banks, pension funds and insurers that the EU wants to contribute to a rescue by way of an "informal and voluntary" rollover of Greek government bonds.

Athens needs to receive by mid-July a 12-billion-euro tranche of eurozone and IMF loans from last year's bailout to avert a default.

But in order to unlock the funds Greece needs to impose more unpopular austerity measures on an increasing restive public.

A parliamentary vote is due on June 28, with opposition rife to planned privatisations of state holdings, and will be taken amid a general strike.

The second bailout has been prompted by the IMF, which before it releases its part of the aid wants to see that Athens has sufficient assistance lined up for the next couple of years.

Even before the new bailout, Greece owes the equivalent of a year-and-a-half of total national economic output, some 350 billion euros.

On Friday, the euro slid against the dollar amid persistent concerns the Greek debt crisis was spreading contagion across the eurozone.

If Papandreou steers his legislation through next week's voting, 28 billion euros of additional austerity measures will be imposed over five years, alongside a sale of Greek state holdings which international partners hope can raise up to 50 billion euros.

But Papandreou has only a slim, five-seat majority, with waverers already in his Socialist Party, and he faces a general strike called by Greek unions starting on Tuesday.

Greek conservative opposition leader Antonis Samaras bluntly rejects "more taxes in an economy in unprecedented depression."

Euro finance ministers next meet on Sunday July 3. If the Greek parliament has adopted the austerity measures an approval of the slice of bailout funds would reach Athens just in time to avoid a payments crunch.

"There is a very strong determination among the member states to save what we have done since 50 years all together," French Foreign Minister Alain Juppe said of fears the eurozone and ultimately the EU itself might implode due to the crisis.

US Federal Reserve chief Ben Bernanke has warned that failure of the rescue efforts "would pose threats to the European financial systems, the global financial system and to European political unity."

The new Greek bailout would combine fresh eurozone loans and privatisation proceeds with a contribution from banks and other private investors who are being pressed to rollover Greek bonds coming due for redemption.

French President Nicolas Sarkozy said private-sector creditors had shown "a willingness to save the euro."

nothing to fear," Sarkozy said.

France is the country most exposed to Greek sovereign debt, mostly held by private institutions.

However Italy was hit by Greek contagion fears on Friday, with the spread between Italian and German 10-year bonds hitting their highest level since the creation of the euro and banking shares plunging over market rumours of an imminent downgrade of the country's sovereign rating.

And the Bank of England's new watchdog warned the eurozone debt crisis represented the biggest threat to Britain's financial stability.

"Sovereign and banking sector strains in some peripheral euro-area economies are the most material and immediate threat to UK financial stability," said the minutes released Friday from last week's first meeting of the BoE's Financial Policy Committee (FPC).


© 2011 AFP

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