European Leaders Propose a Sweeter Deal for Greece

At a meeting of European leaders on Thursday and Friday, Mr. Barroso is expected to propose to make it easier for the debt-laden country to use the money, the equivalent of $1.4 billion, to encourage economic growth.

“Greece has the potential to access a significant amount of E.U. money,” Mr. Barroso said in Brussels, adding that the money should be concentrated where it can create jobs. The idea, he said, was to “front-load and accelerate them, so that Greece gets the benefit now.”

Fitch Ratings said Tuesday that it would consider even a voluntary rollover of Greece’s sovereign debt as a default, which would lead it to cut the country’s credit rating. And Timothy F. Geithner, the United States Treasury secretary, criticized Europe for failing to speak with one voice on the Greek crisis.

Speaking in Washington, Mr. Geithner called on Europe to “speak with a clearer, more unified voice on the strategy” for Greece, according to Bloomberg News. “I think it’s very hard for people to invest in Europe, within Europe and outside Europe, to understand what the strategy is when you have so many people talking.”

Mr. Geithner said he told leaders of the Group of 7 industrialized countries last weekend that the European Union had “a very substantial financial arsenal” at its disposal and that it needed to ensure that they were “available to be deployed to do the kind of things they need to do to make this process work.”

“That means make it available so banks can be recapitalized where they need capital, to make sure there is a funding available to the banking system,” he said. He added that there was “no reason why Europe cannot manage these problems.”

European leaders have been desperately trying to prevent a Greek default, which would hurt global markets and could fatally undermine the euro monetary union. Some analysts have said it could have an effect on credit and debt markets comparable to the one that followed the collapse of Lehman Brothers in 2008.

The warning by Fitch kept pressure on Prime Minister George A. Papandreou of Greece and his newly shuffled government, which survived a vote of confidence early Wednesday. It also kept the heat on European policy makers as they worked on a second bailout for the country.

Parliament will be asked to endorse further spending cuts, which are a condition of receiving a fresh disbursement of 12 billion euros, or $17.1 billion, from last year’s 110-billion-euro bailout from the European Union and the International Monetary Fund.

“The assumption must be that if these two critical votes are passed, the short-term pressure on Greece will ease,” said Adam Cole, head of foreign exchange strategy at RBC Capital Markets in London.

The Barroso plan is intended to help tackle one of the main obstacles facing the Greek economy, which risks a downward economic spiral of low growth that depresses government tax revenue.

A large pot of money has been allocated to Greece for job creation projects, but of a total of 20 billion euros for 2007-13, only about a quarter has been disbursed. One of the obstacles is that most of the grants require matching money from the country receiving aid, something that Greece is now unable to afford. Changing that rule, however, would be time-consuming, so officials think that accelerating payments would be a quicker way of helping the Greek economy.

Mr. Barroso also reinforced calls for Greek politicians to endorse the austerity measures. “My message today is that if Athens acts, Europe will deliver,” he said. “If anyone thinks that without the program agreed with the E.U. and the I.M.F. we can still get by somehow, there’s an alternative program, that’s not true. There is no alternative. The E.U. and the I.M.F. won’t support any other program.”

Euro zone finance ministers have said that a second Greek bailout would include a contribution by private holders of government bonds. Ministers have asked that the contribution be voluntary but “substantial,” but its nature remains uncertain.

That uncertainty has raised concerns at ratings agencies. Andrew Colquhoun, a senior director for Asia-Pacific sovereign ratings at Fitch, said at a conference Tuesday in Singapore that Fitch would regard a debt exchange or voluntary debt rollover “as a default event and would lead to the assignment of a default rating to Greece.”

But Cristina Torrella, a senior director in Fitch’s financial institutions group, said in a statement that a restructuring or rollover of Greek government debt “would not automatically trigger a default by the major Greek banks.”

“The precise rating actions on the banks will depend on the full terms of the sovereign event and the extent to which this considers maintaining solvency and, vitally, liquidity in the Greek banking system,” Ms. Torrella said.

Article source: http://www.nytimes.com/2011/06/22/business/global/22euro.html?partner=rss&emc=rss