EU goes slow on new aid, Greeks strike over cuts

(Reuters) - EU finance ministers will discuss Greece’s debt crisis next week but will not decide on new emergency aid until a mission to strike-hit Athens that began on Wednesday gives its verdict on progress on reforms.

While Greek newspapers reported that a deal was in the works for extra European Union and International Monetary Fund loans in exchange for deeper privatisations, euro zone officials have played down expectations of imminent news on a new rescue deal.

Euro zone finance ministers meeting next Monday are likely to tell Greece it must deliver on savings and privatisation targets already agreed if it wants new emergency financing next year, a euro zone source said.

The euro fell 0.3 percent to $1.4358, near a three-week low, on doubts that Europe would give Greece and Portugal timely aid. It had risen on Tuesday on a report, later denied, that a new 60 billion euro rescue for Greece was on the cards.

German Deputy Finance Minister Joerg Asmussen said no decision could be made before the inspection by senior EU and IMF officials reports on Greece’s progress on the conditions for its current 110 billion euro bailout.

“There will be debate on Greece next week. No decision will be taken,” Asmussen said.

The mission will focus on a 2011-2015 fiscal plan and on Greek progress on raising 50 billion euros from privatisations.

A year after a bailout saved debt-choked Greece from bankruptcy it already looks clear it will need more help and may have to impose losses on private bondholders.

Markets are braced for some form of restructuring in the long-run as Greece labours with a 327 billion euros debt mountain.

Ten-year Greek bonds currently change hands at around 55 percent of their face value, carrying a secondary market yield of 15.7 percent -- little changed on the day, but up more than 3 percent since the start of the year.

“EXPLOSIVE MIX”

Greeks are already tired of sharp spending cuts and tax rises that threaten their way of life.

Police fired teargas at protesters in Athens in large-scale strikes at the Socialist government’s cuts in pay and pensions and tax hikes as part of its austerity drive.

“People feel they can’t make ends meet and at the same time believe that these policies are not effective. This is an explosive mix,” said Costas Panagopoulos at ALCO pollsters.

Germany, which as Europe’s largest economy sees itself as the paymaster of loans for Greece, Ireland and now Portugal, has made it clear there can be no further aid or easing of the terms of credit without fiscal commitments in return.

Chancellor Angela Merkel acknowledged that this stance does not always make her popular.

“In the debate about solidarity in the euro zone and the stability of our currency I ask questions at the European level that otherwise hardly anyone else asks and some probably find them difficult. They then say ‘once again that’s a Merkel idea’,” she told German newspaper Die Zeit in an interview.

French Finance Minister Christine Lagarde sought to reassure investors that, while extra aid for Greece was not yet decided, a debt restructuring was out of the question.

In the end, further support for Greece -- and maybe fellow bailed-out euro zone nations Ireland and Portugal too -- is likely to be more palatable to EU leaders than a full-on restructuring which would hit Europe’s banks hard.

“Nobody wants to keep funding countries in difficulty like this. But we absolutely must do it because a sovereign debt restructuring would send such a negative message to investors that the whole zone would suffer, the cost of refinancing for all its members would soar,” Lagarde told Le Figaro.





FINNS HOLD UP PORTUGAL AID



The monthly meeting of finance ministers on Monday is also unlikely to decide on lowering the interest rate on the bailout for Ireland, which like Greece is keen to lower funding costs.



Dublin is clinging tight to its ultra-low corporation tax despite demands from its EU partners that it should be raised. It is also wary of enacting speedier austerity measures in return for better terms on its 85 billion euros loans.



“We have not only to cure a broken economy but we have to hold together a society,” Minister for Public Expenditure Brendan Howlin said when asked why the government did not accelerate cutbacks.



Portugal hopes euro zone finance ministers will approve its 78-billion-euro aid plan on Monday, and looked set for a green light from a key German parliamentary panel.



But Portugal’s rescue could be hindered by domestic politics in Finland, where parliamentary support for the rescue could be blocked by eurosceptics.



Finland’s parliament has the right to vote on bailout funds and the True Finns, the third-biggest party, look unlikely to soften their opposition or consider any concessions.



Asked if Finland could take part in the Portugal plan, party leader Timo Soini told Reuters: “If the majority so decides. But not with our votes. All True Finns will vote against it.”



The euro zone got a breakthrough in the saga of who succeeds Jean-Claude Trichet as head of the ECB after Merkel finally came out in support of Italian central bank chief, Mario Draghi, who sources said would be formally nominated by Rome next week.



Merkel’s spokesman said she will support Draghi as the next head of the European Central Bank when his candidacy is officially declared.