Greece: Next few days critical for debt crisis

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Published Jul 14, 2011

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Prime Minister George Papandreou said on Thursday the next few days are critical for dealing with Greece's colossal debt but he was pleased nations now saw the crisis as a broader structural problem for the future of Europe.

Chancellor Angela Merkel said on Thursday that Germany wants a quick solution to the Greek crisis but it had to be feasible, and a completed plan was a pre-requirement for holding any special euro zone summit on Greece.

“It is positive that in recent days our partners in Europe are discussing increasingly, and pressing for, comprehensive solutions,” Papandreou told a cabinet meeting, adding:

“They see that ... it is not a Greek problem, or simply a problem of the periphery, but a wider structural problem for the future of European countries.”

Alarmed by a worsening of the euro zone debt crisis, policymakers and bankers are examining radical proposals to rescue Greece that include a sharp cut in its debt burden, ways to prop up banks and a new emphasis on boosting Greek growth, official and banking sources say.

The change of approach towards Greece emerged during the past week as a surge in Italian and Spanish bond yields, and further downgrades of the credit ratings of Portugal and Ireland, made it clear that the lack of a comprehensive solution threatened to drag bigger countries into the debt crisis.

Papandreou said Greece was under a suffocating schedule to meet its obligations and the next days would be “critical”.

PROTESTS AND SPLITS

Last month his government passed austerity measures through parliament, sparking bloody demonstrations.

An opinion poll on Thursday showed that the opposition conservatives had increased their small lead over the ruling socialists.

After providing assurances that Greece will not go into default, the government faces an uphill struggle to convince a sceptical public to accept a “selective default”, should euro zone policy makers decide on an option that leads to this.

“The term 'selective default' should not be translated in Greek in a way that is, to say the least, populist and irresponsible. There is no danger of bankruptcy,” Greek Finance Minister Evangelos Venizelos told parliament on Thursday.

Venizelos also expressed his confidence that there would be no problem for Greek banks as a consequence of Friday's stress test results.

“There is absolutely no problem with the Greek banking system. The Greek banking system is absolutely covered and absolutely secured within the euro-system,” Venizelos told lawmakers in a speech.

A Greek government official who attended the cabinet meeting on Thursday said, on condition of anonymity, that Greece was pressing for a long-term but quick decision on a new aid package that would put the country on a sustainable path.

“Greece wants a solution as quickly as possible, one in which Greek debt is sustainable over the long term and less expensive to service, safeguarding the interest of Greek households,” the official said.

The IMF joined Germany on Wednesday in pushing for private sector investors to help cut Greece's debt mountain. Ratings agency Fitch cited the uncertainty for private bondholders and foot-dragging on giving more official aid to Greece when it downgraded the country further into junk territory. - Reuters

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