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Papademos Unveils 2012 Greek Budget as Loan Deadline Looms

November 18, 2011

(See EXT4 for debt crisis news.)

Nov. 18 (Bloomberg) -- Greek Prime Minister Lucas Papademos will unveil the final budget for 2012 today as his interim government races against a three-month deadline to secure international loans and avert a collapse of the economy.

Finance Minister Evangelos Venizelos will present the 2012 spending plan to the cabinet at 9:30 a.m. Greek time before it is submitted to lawmakers. The new government, backed by three of the five Greek parliamentary parties, is meeting a week after Papademos won a mandate to secure a second financing package for Greece agreed to with euro partners on Oct. 26.

“With determination and unity we can achieve our new national goals: to overcome this crisis and return the country to a cycle of growth and increased employment,” Papademos said in an e-mailed statement yesterday.

Papademos, a former European Central Bank vice president, must implement budget measures to ensure a bailout of 130 billion euros ($176 billion). That will also mean arranging early next year a Greek debt swap that aims to slice 100 billion euros off the debt burden of 355 billion euros.

His immediate priority is to secure the release of an 8 billion-euro loan under an earlier bailout by the middle of next month. Disbursement was halted by German Chancellor Angela Merkel and French President Nicolas Sarkozy after former Prime Minister George Papandreou said he planned a referendum on the terms of the second bailout, roiling markets.

First Meeting

Papademos travels to Brussels on Nov. 21 for his first meeting as premier with European Union President Herman Van Rompuy and European Commission President Jose Barroso. He will meet a day later with Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of euro-area finance ministers, in Luxembourg.

Charles Dallara, the head of the Institute of International Finance, which represents more than 450 financial companies, told reporters in Frankfurt yesterday he believes it is possible to reach “a very, very high” participation in the swap, and that the deal it is brokering with Greece is final and won’t be replicated in other countries.

Greece plans to pay lenders 50 cents for each euro the government borrowed under the terms of the bailout plan agreed to at the Oct. 26 summit. Its 4 percent notes due in August 2013 now trade at 34.5 cents. Fitch Ratings says the agreement with creditors would amount to a “default event” if implemented, while the International Swaps and Derivatives Association says it won’t trigger credit-default swaps.

Euro, Stocks

The euro was little changed at $1.3466 at 10:55 p.m. Athens time. European stocks declined, with the Stoxx Europe 600 dropping 1.3 percent to 233.97.

Greece’s benchmark stock index gained 1 percent to 724.81. The yield on the 10-year Greek bond added 27 basis points to 28.92 percent. Two-year note yields fell 226 basis points to 111.2 percent.

Greece’s debt will reach 163 percent of gross domestic product this year and jump to 198 percent in 2012, the European Commission said in its economic forecast. The estimate doesn’t include the effects of the debt swap. That compares with 173 percent predicted by the government in its 2012 draft budget.

The budget deficit is seen at 8.9 percent of GDP this year, according to a Nov. 10 report from the European Commission. The deficit will fall to 7 percent in 2012, the commission said.

New Government

The new government needs to push ahead with plans including cutting 30,000 state workers and reducing pensions and wages to meet conditions for the loans. Unions have said they plan a general strike when the 2012 budget reaches a vote in the parliament.

Papademos formed a government on Nov. 11 after four days of political arguing that followed global turmoil sparked by Papandreou’s referendum plans. EU and IMF officials had increased calls for cross-party support for economic reforms.

Antonis Samaras, the head of the New Democracy party, the country’s second biggest, has balked at signing a separate letter pledging commitment to austerity measures requested by EU officials, saying his support for the transitional government is enough.

The IMF will release the next tranche of funding for Greece once there is broad political support for the measures attached to the loan, a spokesman said. “It’s important that the unity government now shares its commitment to the implementation of the economic program,” David Hawley, a spokesman for the fund, told reporters yesterday.

--With assistance from Tom Stoukas and Eleni Chrepa in Athens, Jim Brunsden in Brussels, Aaron Kirchfeld in Frankfurt and Sandrine Rastello in Washington. Editors: Kevin Costelloe, Scott Lanman

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Marcus Bensasson in Athens at mbensasson@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net


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