Greece rushes to pass bailout laws amid protests

By George Georgiopoulos and Harry Papachris | February 22, 2012 8:19 PM IST

The Greek parliament, barricaded from protests by workers and pensioners angry over austerity, scrambled on Wednesday to pass laws needed to secure payment of a second international bailout for the debt-laden country.

Lawmakers set to work on a flurry of measures demanded by euro zone states in exchange for a 130 billion euro rescue, as Dutch Finance Minister Jan Kees de Jager maintained a barrage of skepticism about Athens' ability to meet its reform commitments.

"To be honest, I have doubts, but it's the best we could do," De Jager told French daily Le Monde when asked whether Greece could implement the new bailout program agreed by euro zone ministers early on Tuesday.

He called for a strengthening of the euro area's financial firewalls around Greece, combining the current temporary rescue fund with a new permanent 500-billion-euro one due to come into force in July - a move so far opposed by Germany.

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Credit ratings agency Fitch downgraded Greece further ahead of a planned bond swap under which it will enforce sharp losses on private creditors as part of the bailout program.

It was the first of widely expected cuts from all rating agencies because Greece will pass into technical default on its liabilities once the transaction is completed, which Finance Minister Evangelos Venizelos said must take place by March 12.

"The exchange, if completed, would constitute a 'distressed debt exchange'," Fitch said in a statement downgrading Greece to C from CCC.

When the bond swap is finished the Greek sovereign rating will drop further to 'restricted default' and then will be re-rated again "at a level consistent with the agency's assessment of its post-default structure and credit profile," Fitch said.

Under the terms agreed on Tuesday, private holders of just over 200 billion euros of Greek bonds will take a loss of 53.5 percent in the face value of their holdings to ease Athens' debt burden.

Laws to enact the debt swap went to parliamentary committee on Wednesday and are set to be adopted in plenary on Thursday.

"To implement all the agreements reached in Brussels on February

21 and meet tight deadlines the formal announcement of the PSI (debt swap) offer must take place no later than Friday," Venizelos told Parliament's Economic Affairs Committee.

The legislation requires that investors get at least 10 days to consider the transaction and creates so-called "collective action clauses" (CACs) forcing all bondholders to proceed with the transaction once it has won a specified level of approval.

According to the draft law, the swap will go ahead once a 50 percent quorum of bondholders have responded to the offer and the CACs will be activated once a two-thirds majority of that quorum have voted in favor of the swap.

The debt swap is a vital part of a plan to cut Greece's liabilities from 160 percent of gross domestic product to 120.5 percent by 2020, according to the terms of the Brussels deal.


With a 14.5-billion-euro debt repayment due on March 20, caretaker Prime Minister Lucas Papademos told a late-night cabinet meeting on Tuesday to make sure all components of the rescue package were in place by elections slated for April.

"We have a lot of work to do from now until the end of March," Papademos told a late-night cabinet meeting on Tuesday, according to a statement.

"If we finish our job in the next two months and if we then put in place the program successfully, we will overcome the crisis," he said, forecasting stable growth in 2014 and 2015.

The conservative New Democracy (ND) partner in the current coalition with the PASOK socialists is pushing hardest for early elections but senior PASOK officials are less enthusiastic about a vote in which their party faces decimation.

"It would be good if the government of Lucas Papademos had more time. People must feel that something is changing," Environment Minister and PASOK member George Papaconstantinou told Germany's Die Zeit newspaper in an interview to be published Thursday.

However he recognized that ND - which can pull the rug from the coalition when it wants - held the key. ND sources told Reuters on Tuesday they could agree to elections on April 29 if time was needed to complete the bond swap.

Greeks are bracing for a decade of hardship. Planned rallies on Wednesday included events organized by the two main trade unions, the unemployed, journalists and even motorcyclists.

Police placed metal barriers in front of parliament to try to prevent a repeat of February 12 riots when hooded youths torched and looted buildings across central Athens as lawmakers backed 3.3 billion euros in cuts to wages, jobs and pensions.

The complex deal reached on Tuesday buys time to stabilize the 17-nation currency bloc and strengthen its financial protection against a Greek default, but it leaves deep doubts about Greece's ability to avoid difficulties in the longer term.

"The Greek deal is a sham. It's designed to make everybody feel better," U.S. investor Jim Rogers told Reuters Insider television. "This Greece deal is only designed to get us through the French election and the American election and the German election."


Market sentiment on Greece is still nervous, as evidenced by a bond auction at which Germany, regarded as Europe's safe haven, sold 4.3 billion euros of new two-year paper despite an ultra-low coupon of 0.25 percent.

A draft enabling law for new budget cuts introduced into parliament on Tuesday showed that Greece now sees a budget deficit of 6.7 percent of gross domestic product, up from an original target of 5.4 percent in its initial 2012 budget.

The new figure retroactively reflected a more pessimistic view of the economy that already emerged last year as Greece and its lenders set to work on the bailout package.

In Berlin, a finance ministry spokeswoman said Germany did not regard the new deficit projection as negative.

The rescue package calls for the deployment of a permanent team of foreign inspectors to make sure Athens sticks to the terms of its second bailout in less than two years. It also requires Greece to park revenue to cover debt service into a special reserved account.

The plan reflects the mistrust between Greece and foreign lenders - in particular EU paymaster Germany - after years of backsliding by Athens, but it has riled Greeks whose sense of national pride has been hurt by the threat of bankruptcy.

Greece has long had a reputation for lax tax collection that has benefited a super-rich class. In a statement, the Organization for Economic Co-operation and Development said Athens had signed a convention committing it to international standards of tax collection.

(Additional reporting by Daniel Flynn in Paris, Axel Threlfall in London, Gareth Jones and Brian Rohan in Berlin; Writing by Mark John; Editing by Paul Taylor)

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