[MGSA-L] Greek PM on brink as anxious world watches euro zone

June Samaras june.samaras at gmail.com
Thu Nov 3 13:45:49 PDT 2011

Greek PM on brink as anxious world watches euro zone

2:14pm EDT

By Dina Kyriakidou and Abhijit Neogy

ATHENS/CANNES, France | Thu Nov 3, 2011 2:34pm EDT

(Reuters) - Greece's teetering government backed away from a proposed
referendum on staying in the euro on Thursday, while European leaders
talked for the first time of a possible Greek exit to preserve the
single currency.

Fast-moving events in Athens overshadowed the first day of a summit of
the Group of 20 major economies on the French Riviera, with world
leaders again anxiously urging Europe to act to stop contagion from
its sovereign debt crisis.

They discussed increasing the International Monetary Fund's resources
to help distressed states and constructing a financial firewall to
protect vulnerable euro zone economies Italy and Spain from a possible
Greek default, participants said.

In Athens, beleaguered Prime Minister George Papandreou said his call
this week for a referendum, which sparked panic on global financial
markets, "was never a purpose in itself," and he would be happy if the
vote were not held.

Papandreou told lawmakers from his Socialist party he had agreed to
talks with the center-right opposition on a transitional government to
implement a new EU/IMF bailout program. If that led to a consensus in
support of the plan, there would be no need for a referendum.

At a bruising meeting in Cannes on Wednesday night, French President
Nicolas Sarkozy and German Chancellor Angela Merkel warned Papandreou
that Athens would not receive a cent more in aid until it met its
commitments to the euro zone.

Greece was due to get a vital 8 billion euro installment this month
and says it will run out of money in mid-December if it does not get
the loan.

Despite the turmoil in Athens and uncertainty over the euro zone,
European stock markets and the euro rallied in volatile trading as the
likelihood grew that Greece would not hold the highly risky public

The European Central Bank also provided a surprise boost by cutting
interest rates by 25 points to 1.25 percent and saying its policy of
buying euro zone government bonds would continue for now with limited
scope to support its monetary policy.

The leaders of China, Russia and the United States pressed the
Europeans to move more swiftly to contain the debt crisis, with
Washington urging Germany to relent and let the ECB play a greater
role in financial firefighting, G20 sources said.

"Europe should aid itself. The European Union has everything for that
today -- the political authority, the financial resources and the
backing of many countries," Russian President Dmitry Medvedev said.

Canadian Prime Minister Stephen Harper said the leaders had discussed
contingency plans if Greece were to leave the euro zone, "but my
expectation is that cooler heads will prevail and the package will be
accepted (by Greece)."


Greek Finance Minister Evangelos Venizelos broke ranks with
Papandreou, saying Greece's euro membership was a historic achievement
and "cannot depend on a referendum." He demanded that the government
openly ditch the referendum idea.

Dissident lawmakers in the ruling PASOK party also spoke out against a
plebiscite and called for a national unity government or early
elections, casting doubt on whether Papandreou would survive the week
in office. Some suggested former ECB vice-president Lucas Papademos
should head such an administration.

Signaling a will to compromise, opposition leader Antonis Samaras
called for a transitional government to lead Greece to early elections
and said parliament should first ratify last week's 130 billion euro
($178 billion) bailout deal.

European Union leaders have long called for national unity in Greece
in support of painful austerity measures needed to cut the country's
crippling debt, expected to reach 160 percent of gross domestic
product this year.

Sarkozy told a news conference the tough message delivered by France
and Germany to Greece's political class was showing signs of bearing
fruit. "Things are progressing," he said, welcoming Samaras' support
for the bailout plan.

Euro area leaders talked openly of a possible Greek exit from the
17-nation currency area, seeking to maximize pressure on Athens and
preserve the euro in case of a "no" vote.

Merkel repeated on Thursday that the stability of the euro had
priority for Germany over Greece's euro membership, touching a popular
nerve at home. Germany's best selling Bild newspaper railed against
Greece and demanded it be ejected from the euro.

Merkel also said Italy and Spain must press on with economic reforms.

The chairman of euro zone finance ministers, Luxembourg Prime Minister
Jean-Claude Juncker, said policymakers were working on possible
scenarios for a Greek exit.

The specter of a possible hard Greek default and euro exit hung over
the G20 summit, highlighting Europe's frailty and divisions just when
Sarkozy had hoped to showcase his leadership of the world's major

The summit had been meant to focus on reforms of the global monetary
system and steps to rein in speculative capital flows and regulate
commodities markets, but the shockwaves from Greece upended the talks.

U.S. President Barack Obama said Europe had made some important steps
toward a comprehensive solution to its debt crisis but needed to flesh
out and implement the plan quickly.

A disorderly Greek default would reverberate across the euro zone,
engulfing big economies like Italy and Spain, and potentially plunging
the global economy into a recession.


Earlier in Cannes, leaders of Germany, France, Italy, Spain and top
officials from the International Monetary Fund, European Central Bank
and EU explored ways of accelerating implementation of a euro zone
anti-crisis package agreed on October 27.

That plan, which includes debt relief for Greece, a recapitalization
of European banks and a leveraging of the bloc's rescue fund, was
meant to stem the two-year old crisis before Papandreou's referendum
call cast the bloc into turmoil.

Officials said the meeting focused on speeding up the creation of a
firewall to protect other vulnerable euro zone states from the fallout
from Greece.

The G20 is considering an IMF proposal to create a new short-term line
of credit to help countries that are facing economic shocks beyond
their control, a G20 official familiar with the talks said.

British finance minister George Osborne said leaders discussed
increasing the global lender's resources, which China strongly backed,
and he had heard no dissenting voices.

The risk premium on Italian bonds over safe-haven German Bunds has hit
euro-lifetime highs this week, despite European Central Bank buying of
its bonds. Spain had to pay its highest yield since 2008 at a bond
auction on Thursday.

(Additional reporting by Lefteris Papadimas in Athens, David Ljungren,
Abhijit Neogy, Giselda Vagnoni, Catherine Bremer, Gernot Heller,
Daniel Flynn, Luke Baker, Gui Qing Koh and Alexei Anischuk in Cannes;
Writing by Paul Taylor; Editing by Janet McBride)

June Samaras
2020 Old Station Rd
Canada L5M 2V1
Tel : 905-542-1877
E-mail : june.samaras at gmail.com

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