Germany sees private sector helping Greece

Negotiations on the aid package could be wrapped up by Saturday, the European Commission said, and private sector involvement could make it easier for EU governments to persuade skeptical taxpayers to rescue Greece from its debt crisis.

German Vice Chancellor Guido Westerwelle compared the need for the private sector to support Athens with Berlin's planned levy on banks to insure against future bank crises.

"I expect that, just as in Germany banks will participate in the consequences of the economic and financial crisis through the famous bank levy that we agreed upon in the government, so also in Europe banks will want to make their contribution and will do so," Westerwelle said.

Greece is preparing severe austerity measures to cut around 24 billion euros of budget deficit and unlock European Union and IMF aid of up to 120 billion euros, which investors hope will stop the debt crisis from sinking other fragile EU economies.

But it faces a battle with unions who have been angered by the scale of the cutbacks.

A senior banking source told Reuters that Deutsche Bank AG

Chief Executive Josef Ackermann, at the request of Germany's finance minister, was helping coordinate German private sector efforts to support the rescue package.

The consortium has already pledged to contribute between 1 billion euros ($1.3 billion) and 2 billion, which could involve buying Greek government debt, although no formal agreement has been struck, the source said.

Not all banks were enthusiastic. HypoVereinsbank chief executive Theodor Weimer said: "Banks cannot and should not pick up the bill."

The idea behind the consortium is that if markets see the private sector is taking the Greek rescue seriously, other companies may follow, helping to stabilize nervous markets.

Although political barriers remain, the rescue package is likely to win the unanimous approval required from euro zone countries for it to go ahead.

Germany had expressed deep reservations about bankrolling a profligate Greece because Athens misled partners over its catastrophic finances. But Finance Minister Wolfgang Schaeuble said on Friday supporting Greece was vital to all euro members.

"And that's why it's important -- not only to help Greece to prevent the Greece crisis turning into a danger for the euro -- but at the same time to fight speculation," he said.

The German government will meet on Monday to give approval to a draft law on providing loans to Athens. The government will then try to push the law through the lower house of the German parliament by Friday.

Longer Term Doubts

Despite the good short-term prospects for euro zone approval, there are still serious doubts over whether European governments will sustain their commitment to Greece over the longer term, especially if Greece fails to meet its budget cut targets.

Social unrest could prevent socialist Prime Minister George Papandreou's government from pushing through the planned austerity measures, and Greek unions have called a series of strikes in protest at the cuts.

Unions say the International Monetary Fund asked Athens to raise sales taxes, scrap bonuses amounting to two extra months pay in the public sector and accept a three-year pay freeze.

Papandreou said the measures were vital to securing aid.

"Many talk about red lines. The only red line is the country's interest. Today the top priority is the survival of the nation. This is the red line," he told parliament.

Finance Minister George Papaconstantinou said Greece was determined to push financial reforms through. "We will not weigh any political cost. We will not step back," he said.

German politicians have said the aid package could be worth 100-120 billion euros ($133-160 billion) over three years, against an original plan for 45 billion euros of aid in 2010.

Euro zone finance ministers will meet on Sunday to discuss Greece and held a preliminary conference call on Friday, French Foreign Minister Bernard Kouchner told Reuters.

Ratings agency Moody's downgraded nine Greek banks, briefly pushing their shares into negative territory after they rallied as much as 7.7 percent earlier on hopes of a quick deal.

Those hopes helped push up global equities. In Friday morning trade in New York, the euro had risen 0.8 percent to stand at $1.3335. The spread between Greek and German 10-year government bond yields narrowed.

But the euro was still on track to fall some 1.3 percent for the month and concerns remained over euro zone debts.

No Contagion

European Commission President Jose Manuel Barroso said on Friday the Greek rescue package would prevent the crisis from spilling over to other countries.

"It is about safeguarding the overall financial stability of the euro zone," he said, adding it would "prevent further possible effects of contagion."

Economists said if euro states failed to engineer a Greek bailout that calmed markets, they could end up footing a bill of half a trillion euros ($650 billion) to save several nations.

Markets have worried that countries like Portugal and Spain -- whose debts were downgraded by ratings agencies this week -- could be threatened unless they tackle their deficits swiftly.

Portugal's main opposition leader, Pedro Passos Coelho, said his Social Democratic Party (PSD) supported the government's austerity plan and hoped to agree a pact that may allow a cut of this year's budget gap by an additional 1 percentage point.

His comments were likely to reassure investors concerned about Lisbon's ability to tackle its deficit.

In Spain, unemployment rose to a record high above 20 percent in the first quarter, stifling attempts to recover from recession, but Economy Minister Elena Salgado said Spanish debt was under control and Madrid would not have to seek aid.

The Greek talks are being closely watched for details on whether the aid will start in time for Greece to refinance an 8.5-billion-euro bond coming due on May 19 and if the deal will be big enough to handle Athens' 300-billion-euro debt pile.

The planned austerity measures include cuts aimed at Greece's system of public wage allowances, which often include generous extra pay for activities such as using computers or getting to work on time.

These are primarily meant to keep base salaries and pensions low, and a 5-15 percent cut could save the state about 300 million euros a year.

More measures are bound to meet resistance. Opinion polls show a majority of Greeks oppose outside aid and expect the rescue package to hit living standards

"Armageddon is coming," Greece's conservative daily newspaper Eleftheros Typos said. "...The lenders are setting the terms, and they are incredibly tough. At least for three years they will drink our blood."

[Source: By Dina Kyriakidou, Reuters, Athens, 30Apr10]

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