Athens/Brussels (Reuters)-new Greece's Finance Minister met EU officials and the IMF Thursday to address gaps in its austerity plans with EU leaders, insisting that tough measures are taken in exchange for financing to avoid bankruptcy.
Euro-zone Governments are meanwhile constraints banks and insurers to keep exposure to Greek sovereign debt when their bonds mature as part of a planned rescue according to Athens.
Inspectors from the International Monetary Fund and the European Commission, European Central Bank has met Finance Minister Evangelos Venizelos in an attempt to smooth out differences on the bailout program, which wants to change to appease an angry public.
"There is a gap of 3.8 billion euros out of the total package of 28 billion that should be discussed with the troika," a legislator who took part in a parliamentary Committee with the Minister told Reuters. Athens has approved a five-year austerity plan 28.3 billion in tax increases, spending cuts.
Officials say Venizelos, promising a fairer tax system, would backpedal on plans to lower the threshold of income tax and to raise oil-heating sets that would create a financing gap.
While not against changes in principle, there must be robust, credible alternative measures to bridge the gap, said an EU source.
The stakes are high with signs of economic slowdown in emerging Europe even without the threat of a Greek default and the contagion that would follow.
"The risk of a severe financial crisis and the beginning of a new recession are very high right now," Jyrki Katainen, officially sworn in as Minister Wednesday, was quoted as saying by public broadcaster YLE.
Combination batting and moral support, EU leaders gathering in Brussels say Greek Prime Minister George Papandreou, who will release the next 12 billion euros (US $ 17.2 billion) in emergency aid, on 3 July, to prevent running out of money, provided the Athens Greek Parliament adopts key economic reforms in a crunch vote in Parliament next week.
Senior official EU economic, Olli Rehn, said Europe was ready to help Greece return to economic growth, "but the first thing is that Greece must help itself, so that other Europeans can help Greece. This is the bottom line. "
While Papandreou expressed confidence for the public vote, the Slovak Minister Iveta Radicova said he had expressed doubts in a private phone call Wednesday.
"Papandreou has serious doubts whether the necessary steps will in Parliament," said the Slovak Radicova the European Affairs Committee of Parliament.
The Greek crisis is set to dominate EU Summit, the fourth this year, as the 27 leaders grope for a solution to the debt woes that have forced the Greece, Portugal and Ireland to seek bailouts.
There are no any formal decision on Greece, but the rally will be monitored intensively by financial markets for any message you send to the EU if the plan can work.
Investors are skeptical. Five-year credit default swap on the Greek government debt 138 basis points has risen to 2.025 bps, according to Markit data monitor, implying a more than 80 percent probability of default during that period.
The US Federal Reserve Chairman Ben Bernanke said on Wednesday that much more than the future of Greece was at stake.
"If there were a failure to resolve this situation, would pose threats to the European financial system, the global financial system, and drive European politics, would guess, well," he said.
Default is Greek would force European banks and Governments take large losses, spread the infection to other sovereigns eurozone stressed and potentially plunge the economy of the world's largest trading bloc in the world, already slowing, into recession.
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Papandreou's reshuffled the Government won a confidence vote in Parliament earlier Wednesday, one of several obstacles on the path to avoid a default.
On 28 June, Parliament will vote on a package of privatization, tax increases and spending cuts and Finance Ministers of the eurozone will review progress on 3 July to release the next tranche of loans.
Despite calls EU and IMF to Greek political leaders to unite behind the program, all opposition politicians voted against the Government a vote of confidence, and 20,000 protesters chanted insults outside Parliament.
EU leaders Conservatives were planning to exert strong pressure on the Greek opposition leader Antonis Samaras, to support the bailout in a pre meeting on Thursday.
Although Greece is able to convince the EU and the IMF is fully committed to making budgetary adjustments, this will buy has asked the Government just truce of a few months and most economists expect will eventually by default.
Greece accepted a package of 110 billion euro of EU/IMF loans in May 2010 and now needs a second bailout of similar dimensions to its financial obligations until the end of 2014, when it hopes to return to the capital markets for funding.
Euro area Member States, led by Germany, insist every second aid package should include the involvement of the private sector. But the rating agencies said they would treat a voluntary rollover of debt default is selective, potentially starting a chain reaction of turbulence on the markets. ? "We are working on a solution that is based on a voluntary rollover and I predict that it will create a credit event," said Rehn.
The meetings on Wednesday, banks and insurers in Germany, France, Spain and Belgium were invited by the national central banks to roll over their Greek debt voluntarily when the bonds mature, said banking and Government sources.
French-Belgian Banking Group that Dexia is ready to roll the exposure to Greek debt, the largest Belgian Bank, adding to the list of banks prepared in principle to take part in a financial source said.
The medium-term economic reform agreed by Athens provides for the collection of 50 billion euros by selling state companies and includes 6.5 billion of spending cuts and tax rises in 2011.
Although Greece reaches its objectives-and has already lost many still won't be able to manage their own debts, amounting to 150 percent of gross domestic product.
(Additional reporting by Martin Santa in Bratislava, Deighton and Robert-Jan Bartunek, in Brussels, George Georgiopoulos and Lefteris Papadimas in Athens; Written by Mike Peacock, editing by Janet McBride)
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