- guardian.co.uk, Friday 30 April 2010 12.49 BST
As the French regulator announces that a bailout plan for Greece's debt crisis is nearly complete, PM George Papandreou faces anger from unions and public officials over the austerity package. Photograph: John Thys/AFP/Getty Images
Finance ministers from across the eurozone are holding a conference today ahead of a face-to-face meeting on Sunday which is expected to announce the details of a bailout for Greece.
The news comes as senior politicians from Spain and Portugal, which have been caught up in the panic about the indebtedness of European countries sparked by Greece's problems, attempt to persuade investors that their economies are not in danger.
Intense negotiations are still taking place in Athens between the EU, European Central Bank and International Monetary Fund about the details of the Greek rescue plan, with the European commission warning that the entire Greek economy is going to have to be overhauled "root and branch". But there is growing optimism that a deal is imminent.
Reports suggest that the bailout even includes money from the German financial and industrial sector, which has a heavy exposure to Greece, with business leaders being cajoled into action by Deutsche Bank chief executive Josef Ackermann.
"There is a meeting going on now," French foreign minister Bernard Kouchner told Reuters. "And on Sunday European finance ministers (will meet)."
Earlier the French market regulator said a deal could come as early as this evening. "What the markets are looking for is the plan, which will be presented tonight or over the weekend," Jean-Pierre Jouyet, chairman of French regulator AMF told RMC Radio. "It will be done, it is almost completed. I have no doubt about that."
A spokesman for the European commission, however, said he expects talks to conclude tomorrow.
Speculation that a deal on a bailout package that could top €120bn (£104bn) is close comes as Greek Prime Minister George Papandreou continues the difficult task of selling the austerity package that must accompany the bailout to angry union leaders and other public officials in his country.
He told the Greek parliament on Friday that new austerity measures will have to be introduced in order to get the bailout cash. "The measures we must take, which are economic measures, are necessary for the protection of our country. For our survival, for our future, so we can stand firmly on our feet," he said. "It is a patriotic duty to undertake this, with whatever political cost, which is tiny faced with the national cost of inaction ... and indecision."
Greek bank shares rallied again early today, on optimism that a deal was close. They later fell back, though, after ratings agency Moody's downgraded the sector and warned that Greek banks would find it more expensive to borrow in the future.
The Greek government has already announced a €4.8bn austerity package that has pruned the pay of civil servants and hiked taxes but deep budget cuts coupled with an increase in taxes – possibly including a dramatic hike in VAT – are now being planned to deal with the worst economic crisis in Greece since the civil war, 60 years ago. There are fears that the plans will lead to widespread public unrest with union leaders already calling a 24-hour general strike on 5 May.
Germany is in line to be the largest contributor to the bailout fund and has insisted that Greece attempts to rebalance its books. The legislation needed in the German parliament to approve its part of the bailout plan could be wrapped up within a week, according to German finance minister Wolfgang Schaeuble.
The bailout plan also reportedly includes up to €2bn from Germany's private sector, which is heavily exposed to the Greek crisis. Deutsche Bank chief executive Josef Ackermann is reported to be co-ordinating the involvement of German financial and industrial companies.
Among continental European banks, analysts at Evolution earlier this week calculated that Fortis, Dexia, CASA and Société Générale are most affected because of the value of their Greek debt holdings relative to their size.
According to Barclays Capital, meanwhile, UK banks account for only 3% of the exposure to Greek bonds, while data from the Bank for International Settlements shows that, at the end of 2009, Greece owed about $240bn (£160bn) overseas. Of this, France and Germany have the biggest exposures of $75bn and $45bn respectively.
SPAIN AND PORTUGAL
Portugal's prime minister Jose Socrates, meanwhile, has told his country's parliament that the government will take all necessary measures to reduce the national debt and restore investor confidence. He has held meetings with the leader of the country's main opposition party about reducing the public budget and introducing other austerity measures, which marked "a new phase of constructive political dialogue".
Earlier this week Standard & Poor's reduced its credit rating for the country by two notches, from A+ to A-, amid concerns that the government will be unable to get the deficit under control. The country's economy has barely grown in the past 10 years.
Spain's economy minister Elena Salgado, meanwhile, has mounted a concerted campaign in the media to convince economists and investors that her country is not in the same state as Greece, despite the decision of Standard & Poor's to downgrade its credit rating for the country earlier in the week.
"Frankly, I think the concrete facts do not support this decision (to downgrade the country's rating)," she said in an interview with newspaper Cinco Dias published on Friday. "Our debt is clean, we will not have to ask for help."
The interview follows an article penned by Salgado yesterday for financial news service Bloomberg, whose trading screens have always been popular among derivatives and foreign exchange traders, in which she answered the criticisms of economists and financial analysts who reckon the country's growth forecasts are too optimistic.
"Investors can rest assured that Spain will rise to the challenge. We are devoting all our efforts to putting our fiscal house in order, and at the same time, laying the groundwork for more balanced and sustainable growth," she wrote.
The Spanish public deficit was one of the highest in the euro area last year, at 11.4% of GDP. The government has pledged to reduce the deficit to 3% by 2013 and is due to announce a fresh round of cost savings later today.
In her article, Salgado argued that analysts are underestimating Spain's export potential and discounting a return to consumer spending. Spain's household savings rate is currently running at a record high of over 19% compared with its pre-crisis average of between 11% and 12%.
"This increase is due to two things," Salgado argues. "The need for deleveraging and the need to build precautionary savings. We believe the second ingredient is an important one, and as soon as the economy generates employment, and confidence picks up, the savings rate is going to adjust smoothly to historical levels, allowing both for a decrease in leverage and a stronger recovery of private consumption than others predict."
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