Bloomberg News

Germany Presses Greece to Unite Behind Cuts to Escape Default

June 19, 2011

June 19 (Bloomberg) -- Germany prodded Greece to unite behind the austerity measures required to keep bailout funds flowing as Greek Prime Minister George Papandreou battled to overcome domestic opposition to spending cuts and asset sales.

German Finance Minister Wolfgang Schaeuble said Greece must craft an “ambitious” economic overhaul to obtain 12 billion euros ($17.2 billion) to escape default in July and to win extra financing on top of the 110 billion euros promised last year.

“We will surely work on laying the groundwork for paying out the tranche,” Schaeuble told reporters before a meeting of European finance ministers in Luxembourg tonight. “It also depends on Greece making the necessary decisions with a fundamental consensus of the political parties so that we can be confident that Greece will live up to its commitments.”

Germany’s decision on June 17 not to force Greece into default gave a lift to stocks, bonds and the euro, spurring optimism that Europe would get ahead of the debt crisis that has exposed the weaknesses of the 17-country currency union.

While Germany bowed to European Central Bank and French demands not to compel investors to buy new Greek bonds as old ones expire, the lines are blurry between a “voluntary” and “compulsory” rollover that would lead rating companies to declare Greece in default.

On the table are incentives for bondholders to maintain their exposure to Greece, said Luxembourg Prime Minister Jean- Claude Juncker, chairman of the talks. He ruled out an agreement tonight on a new three-year package for Greece, pointing to July for a “final and overall answer.”

‘Critical Crossroads’

Tonight’s euro area finance ministers’ meeting, starting at 7 p.m., coincided with the start of a three-day Greek parliamentary debate in Athens over a confidence vote in a new cabinet at what Papandreou called a “critical crossroads.” Papandreou has 155 seats in the 300-seat parliament.

The new Greek finance minister, Evangelos Venizelos, who was named in a cabinet overhaul two days ago, came to Luxembourg with a “strong commitment” to the planned 78 billion euros in budget cuts and state-asset sales needed to keep Greece’s official loans flowing.

“We can achieve our target thanks to the efforts of our people and thanks to the cooperation and the assistance of our partners,” Venizelos told reporters as he arrived.

More than 47 percent of 1,208 Greeks surveyed by Kapa Research SA for To Vima newspaper oppose the wage and spending cuts and higher taxes, and want early elections. Almost 35 percent said the package should be approved.

--With assistance from Maria Petrakis and Marcus Bensasson in Athens, Stephanie Bodoni and Rebecca Christie in Brussels, Mark Deen in Paris, Rainer Buergin in Berlin and Anabela Reis in Lisbon. Editors: James Hertling, Patrick Henry

To contact the reporters on this story: James Neuger in Luxembourg at jneuger@bloomberg.net; Jonathan Stearns in Luxembourg at jstearns2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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