Finance Chiefs Demand Quick Greek Aid Deal at Washington Talks .

Saturday, April 24, 2010

By Theophilos Argitis and Flavia Krause-Jackson

Finance ministers urged European governments and the International Monetary Fund to complete an aid package swiftly for cash-strapped Greece as its officials held emergency loan talks in Washington.
U.S. Treasury Secretary Timothy F. Geithner “encouraged them to move quickly,” his department said yesterday after he met his Greek counterpart George Papaconstantinou, IMF Managing Director Dominique Strauss-Kahn and European officials. U.K. Chancellor of the Exchequer Alistair Darling said “the longer this situation carries on, the more damaging it is for Greece.”
Papaconstantinou is negotiating terms for a financial lifeline of as much as 45 billion euros ($60 billion) this year as investors doubt his country can finance itself after its budget deficit totaled 13.6 percent of gross domestic product last year. Any delay in striking a deal may trigger a further sell-off in the country’s assets and hurt markets elsewhere.

Canadian Finance Minister Jim Flaherty told reporters in Washington that some Group of 20 countries, including Europeans, fear the aid plan is “not enough” and want to ensure any rescue is a “one-time event.” Papaconstantinou will hold a press conference at about 10:30 a.m. today.

‘Not Buying’
Papaconstantinou also met yesterday with European Central Bank President Jean-Claude Trichet and European Union Economic and Monetary Affairs Commissioner Olli Rehn. Discussions centered on the appeal for cash and “the progress of work under way in Athens for the preparation of the medium-term economic program of reforms supporting EU and IMF financing,” the Greek finance ministry said in a statement.
Even with the first bailout of a euro-area member nearing, investors are signaling concern about the country’s ability to end its fiscal crisis. A rebound in Greek bonds after the government’s request for support on April 23 fizzled out with the yield on the two-year note rising to 10.23 percent having fallen to 9.63 percent.
Greece’s travails helped weaken European stocks for a second week with the country’s banks including National Bank of Greece SA and EFG Eurobank Ergasias sinking as Moody’s Investors Service cut its credit rating.
“We are not buying Greek debt while so many problems remain unsolved,” said Ralf Ahrens, who holds Greek bonds as part of the about $20 billion he manages as head of fixed-income at Frankfurt Trust. “Asking for the package will not calm down the market.”

2010-11 Plan
European policy makers have only spelled out the aid that Greece would receive over the next year, sparking concern about how the country will fund itself beyond 2011. Germany’s government, which would be the biggest euro-area donor to the package, must pass legislation before it can dispense the money.
While Greece has pledged to lower its budget gap below the EU’s 3 percent limit by 2012, Goldman Sachs Group Inc. says the country’s challenge is so great it may cut or delay payments to bond investors.
“We wouldn’t touch Greece at the moment,” said Rod Davidson, head of fixed income at Alliance Trust Plc in Dundee, Scotland. “The market needs some clarity on whether or not there will be some kind of restructuring of Greek bonds. There’s too much uncertainty and volatility.”

Early May
Rehn told reporters in Washington on April 23 that an aid program will likely be agreed by early May and extend over three years. Greece faces 8.5 billion euros of bonds maturing May 19. Strauss-Kahn declined to answer reporters’ questions on Greece yesterday other than to say its citizens “shouldn’t fear the IMF.”
Greek unions and opposition political parties have already slammed Prime Minister George Papandreou for turning to the lender, criticized in the past by Asian and Latin American nations for demanding too much austerity. ADEDY, the Athens- based federation representing the more than 500,000 Greek civil servants who have had wage cuts this year, called the move a “barbaric attack” and planned a rally for April 27.
Papaconstantinou arrived at his hotel about 2 a.m. yesterday dressed in black tracksuit pants and a hooded top. He arrived to find the reception unstaffed and declined to comment when asked by Bloomberg News about his plans in Washington.
He is also scheduled to meet today with Chinese Finance Minister Xie Xuren, according to the Greek embassy in Washington.

Contagion Risk
Foreign officials differed over the risk posed by Greece’s turmoil to the global economic recovery. Brazilian Finance Minister Guido Mantega said it “is not big enough to threaten” the rebound. Darling said “as long as this problem is allowed to continue to smolder it will hold back peoples’ confidence in the ability of Europe to come through the recession.”
Brazilian central bank President Henrique Meirelles said Greece’s fiscal mess served as a warning to other governments to cut their budget deficits.

“The whole world will have to face the fiscal issue, even larger countries have public debts substantially above what they had before the crisis,” Meirelles said. “This was an alert in the sense that we have a problem ahead.”

European central bankers in Washington played down speculation that Greece’s woes could spill over to other high- deficit countries such as Spain or Portugal. Trichet said April 23 that “Spain is not Greece.”
“Is there a risk for other countries in the zone? No, the other situations have absolutely nothing to do with that of Greece,” Bank of France Governor Christian Noyer said. His Austrian counterpart, Ewald Nowotny, said in an interview that “with Portugal and Spain, if you look at the numbers they do not compare with those of Greece.”

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