Greece eyes timely debt aid

Papaconstantinou also sent a warning to investors who have been betting that Greece will default: 8220;All I can say is that they will lose their shirts.8221;

Saddled with huge debt and a swollen deficit,Greece bowed to intense pressure from financial markets on Friday and formally requested aid,triggering what would be the first bailout of a member of the 11-year-old single currency bloc.

Athens has already announced billions of euros in budget cuts,including tax hikes and reductions in public sector wages,setting off violent protests and strikes.

Now it is in talks with the European Union and IMF on additional steps to get the aid flowing in time to meet a May 19 debt deadline.

Papaconstantinou played down concerns that Germany,facing a key regional election in early May,might block a rescue deal that is hugely unpopular in Europe8217;s biggest economy.

Even if there are delays in getting parliamentary approval in some European countries,IMF support could be matched with bridge loans from European countries that had already cleared the deal,the minister told a news conference at the IMF.

IMF Managing Director Dominique Strauss-Kahn said the Greek aid talks had accelerated and he expressed confidence in Greece8217;s determination to get its economy back on track.

A BIGGER DEAL

Canada8217;s Finance Minister Jim Flaherty said the package would end up being 8220;more than had been said previously,8221; declining to specify the amounts being discussed.

Asked by a reporter whether aid could be as much as 80 or 90 billion euros,Papaconstantinou said he could not provide specific figures.

French Economy Minister Christine Lagarde pointed out that the 30 billion-euro commitment from euro zone countries was just for the first year of a three-year package and talks were going on about what would come after that.

IMF and European funding would be disbursed simultaneously,Papaconstantinou said,addressing speculation that the IMF might lend Greece money quickly if Europe drags its feet.

The IMF is expected to provide one-third of the aid.

Investors would take little comfort from the inconclusive rescue talks over the weekend,analysts said.

8220;The issue of Greece8217;s debt crisis is not over and there are other sovereign debt crisises on the horizon,8221; said Peter Kenny,managing director at Knight Equity Markets.

8220;It will not derail the US market but it will likely be a wet blanket until we get further clarification.8221;

Douglas Lee,an analyst with Economics from Washington,said officials could not afford to allow a default.

8220;If Greece is forced to default,bank credit markets in Europe will freeze and push these economies back into recession,8221; he said. 8220;Repercussions in the US would be very serious. While this worst-case scenario is highly unlikely,lasting effects on confidence in sovereign debt will be reflected in upward pressure on interest rates.8221;

GREECE PLEDGES TOUGH MEASURES

Mindful of opposition to bailing out Greece,German Finance Minister Wolfgang Schaeuble warned Athens that an overhaul of its economy was 8220;unavoidable and an absolute prerequisite8221; if Berlin and the EU were to approve the aid.

Papaconstantinou responded saying Greece was already taking tough measures and the rescue would include strict conditions.

He said Berlin was 8220;completely on board8221; with the conditions set for Greece and noted that Germany had backed the euro zone8217;s decision to make support available to Greece.

France8217;s Lagarde promised to hold Greece accountable for 8220;unsuitable economic policies8221; that pushed its 2009 budget deficit to 13.6 per cent of gross domestic product and its debt to 115 per cent of output.

She described the aid package as a 8220;cocktail of indulgence and great strictness,8221; telling the Journal du Dimanche weekly that Greece8217;s partners would closely monitor progress and put their 8220;foot on the brake8221; if Athens reneged on commitments.

Germany and France,the biggest economies in the 16-nation euro zone,are due to provide about half of the EU aid.

DOUBTS ON AID PACKAGE

Fears over the chances of a debt default have pushed the yield on Greek 10-year bonds above 8.7 per cent,a whopping 567 basis points over the rates on benchmark German Bunds.

This has made it prohibitively expensive for Athens to service its mountain of debt and Greece8217;s formal request for aid on Friday did little to ease market pressures.

One big risk to Greece8217;s economic plans is public opposition to further austerity steps. Greek riot police fired teargas at protesters who held an impromptu march through central Athens on Friday to protest against more budget cuts.

A poll released on Saturday showed that roughly two-thirds of Greeks believe Prime Minister George Papandreou8217;s socialist government was either too slow to react or handled the economy poorly as the country8217;s fiscal crisis deepened.

Centre-left newspaper Eleftherotypia said the 8220;spectre of Hungary8221; was haunting Papandreou8217;s government. Voters in Hungary booted out the socialist government this month after it tried to push through painful IMF-ordered budget cuts.