February 27, 2010 / 12:29 AM / 10 years ago

Greek PM to meet Merkel, Obama amid debt crisis

ATHENS (Reuters) - Greece’s prime minister announced plans on Friday to meet German Chancellor Angela Merkel next week as signs grow that diplomatic efforts are under way to resolve his country’s debt crisis.

Greece's Prime Minister George Papandreou delivers a speech during a parliament session in Athens February 26, 2010. REUTERS/Yiorgos Karahalis

Prime Minister George Papandreou, who is also due to meet President Barack Obama on March 9 in Washington, told parliament he expected help from Greece’s European Union partners, for which German backing would be vital.

Obama held a call with Merkel and British Prime Minister Gordon Brown on Friday in which they discussed the Greek debt crisis, among other issues, the White House said.

Papandreou also met Deutsche Bank’s Chief Executive Josef Ackermann, although an Athens government spokesman denied Greek press reports the German bank was considering buying 15 billion euros in Greek bonds.

Greece wants to restore investors’ confidence in its economic statistics and reassure buyers its debt is manageable after revealing that the previous government understated the budget deficit by half. The EU has offered political support but no bailout.

“We must do whatever we can now to address the immediate dangers today. Tomorrow it will be too late and the consequences will be much more dire,” Papandreou said.

“We ask the EU for its solidarity and they ask us to meet our obligations. We will meet our obligations. ... We will demand European community solidarity and I believe we will get it.”

Investors appeared to welcome the comments, pushing the gap between yields on Greek bonds and their German equivalent — a measure of market faith in Greece’s finances — to below 340 basis points. That marked a drop of nearly 20 bps on the day.

Greek stocks rose 1.4 percent and traders granted the euro a reprieve after it hit a one-year low against the Japanese yen a day earlier. But many people in the market expect the euro to stay under pressure because of concerns about Greece.

The Greek government said Papandreou would visit Merkel on March 5 and Obama on March 9, but gave few details. It also said little about the talks with Ackermann.

Merkel’s government has resisted appeals to promise Greece aid and opinion polls show a majority of Germans oppose a bailout. But many economic analysts say Europe’s largest economy will step in if it believes the euro’s stability is threatened.

Media reports have suggested governments in the 16-country euro zone could offer aid worth 20 billion to 25 billion euros, but the EU has not confirmed that.

In Washington, White House spokesman Robert Gibbs said the United States believed the EU could and would act appropriately to ensure an effective response to the crisis.

A senior U.S. official said Obama and Papandreou would discuss in White House talks “a number of key issues relating to the U.S.-Greek bilateral relationship, including regional security and economic issues.” The official said the meeting had been “timed with the prime minister’s planned travel to the United States.”

Given international concern about Greece’s debt crisis, the leaders were all but certain to talk about it.

FEARS OF CONTAGION

Some of Greece’s EU partners fear market volatility caused by Greece will spread to other countries that use the euro and have big deficits to cover, such as Portugal and Spain.

Spanish Economy Minister Elena Salgado told Reuters there was no risk of a double-dip recession in Spain and its economy would grow in every quarter of 2010.

“Just two weeks ago, two of the credit rating agencies have confirmed our rating, so investors know that Spain is a country in which they can invest with all guarantees,” she said.

Investors are anxious about Greece’s ability to get out of crisis and must decide whether to buy more Greek debt when it issues a new 10-year bond in the next few weeks.

“The prime worry is will Greeks have access to the sovereign debt market at any tolerable rate and that’s what we remain concerned about,” Chris Pryce, director of sovereign ratings at Fitch, told Reuters Insider television.

Greece said after a parliamentary election in October that its deficit would be 12.7 percent of gross domestic product in 2009, four times the EU limit.

It has also drawn up an EU-backed austerity plan, including tough wage and tax measures and pension reforms, to cut the deficit by 4 percentage points this year and bring it below the 27-country bloc’s limit of 3 percent of GDP by 2012.

Protests and marches by tens of thousands of people crippled transport and public services on Wednesday, but Papandreou blamed the problems on the previous conservative government.

“History confirmed our worst fears,” he told parliament. “Past policies make it necessary to proceed to brutal changes.”

EU OFFICIAL TO VISIT ATHENS

His comments could prepare the ground for a new set of fiscal measures before a mid-March EU deadline to show results in cutting the deficit.

EU Monetary and Economic Affairs Commissioner Olli Rehn will visit Athens next week after studying a report from EU inspectors who visited Greece this week with International Monetary Fund and European Central Bank experts.

A Finance Ministry official said the inspectors anticipated Greece could cut the deficit by about 2 percentage points, far short of this year’s target. That would mean extra measures aimed at savings of about 4.8 billion euros ($6.47 billion).

Athens needs to raise about 20 billion euros to cover maturing debt in April and May.

Big German lenders including Deutsche Postbank, Eurohypo and Hypo Real Estate said they would not take on more Greek debt, which could make it harder for Greece to sell bonds to resolve its crisis.

Germany’s Finance Ministry declined comment on a media report that Berlin might buy Greek bonds through lender KfW Group. KfW also declined comment.

In Washington, IMF Managing Director Dominique Strauss-Kahn said the EU nations wanted to resolve Greece’s problems on their own but the Fund was ready to help if asked.

“They want to clean up the situation themselves. ... I do believe they are able to do that,” he said. “We will do what our members ask us” in terms of expertise and support, he added.

Reporting by Athens bureau; Additional reporting by Paul Day in Madrid, Nick Olivari in New York and Lesley Wroughton and Ross Colvin in Washington; Writing by Timothy Heritage; Editing by Peter Cooney

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