Greek FinMin: July 21 eurozone deal not in doubt

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Posted: Aug 19, 2011 8:05 AM
Greek FinMin: July 21 eurozone deal not in doubt

The eurozone's hard-won deal overhauling its rescue fund and extending Greece a euro109 billion bailout is not in doubt, Greece's finance minister insisted Friday, despite five countries' demands for collateral in exchange for their contributions.

Evangelos Venizelos also said the recession in his financially troubled country could be deeper than originally predicted for this year, with output potentially shrinking by more than 4.5 percent.

His comments came a day after The Netherlands, Slovenia, Austria and Slovakia said Thursday they wanted hundreds of millions of euros in collateral like Finland, which struck a deal with the Greek government earlier in the week to receive cash as security for their part of the bailout.

The demands have laid bare the divisions within Europe over how to deal with its debt crisis, which has already seen Greece, Ireland and Portugal bailed out, and has threatened the far larger economies of Spain and Italy.

Although the amount of cash being demanded by the five would probably not be large enough to sink the deal, it could drive up the overall cost of the bailout, which was part of a July 21 eurozone agreement that gave the 17-country eurozone new powers designed to help a country before it is in full crisis.

The July 21 deal "is not in doubt, because it is of vital importance to the eurozone," Venizelos told Skai radio, adding that the agreement was not just about his country.

"It is a decision that concerns Greece as part of a much more general problem," he said.

The European Commission raised objections to the idea of countries seeking collateral in return for participating in the Greek bailout.

"The Commission considers that we should avoid introducing too many new conditions, or excessive collateralization, in order to have a rapid implementation of the decision and a strong ... financing of the new program for Greece," said Amadeu Altafaj Tardio, spokesman for the EU's Monetary Affairs Commissioner Olli Rehn.

The exact amount of each country's share of the euro109 billion rescue is not clear yet, because the International Monetary Fund has not said how much it will provide and Greece is still in the process of negotiating easier debt repayment terms with banks and other private lenders.

A lower contribution from the private sector or extra collateral costs could require the eurozone and the IMF to put up more than the 109 billion euros they initially agreed on.

Venizelos stressed the collateral deal with Finland depended on approval by other eurozone members.

Representatives from eurozone finance ministries were discussing the Finnish deal and any requests from other countries at meetings in Brussels but were not expected to reach a conclusion this week. All eurozone states have to approve the details of the financing of the new Greek bailout.

Venizelos said the agreement for collateral had to be made, or Finland, which saw the nationalist and anti-bailout True Finns party gain a large share of the vote in April national elections, would have blocked the entire deal.

The minister, who assumed his position in late June following a political crisis in Greece, stressed the need for clear messages from the eurozone, saying there were political and financial "side effect(s) each time the eurozone doesn't send clear messages."

Altafaj Tardio echoed the comments.

"The sooner you provide clarity about these issues the more you contribute to restore confidence among all market participants about the boldness of our response to our current challenges," he said.

Greece has been relying on funds from a first, euro110 billion ($158 billion) bailout by other eurozone countries and the International Monetary Fund since May 2010.

The loans have prevented the country from defaulting on its debts.

In return for the bailout, the country has introduced a raft of austerity measures, including cutting public sector pay and pensions, increasing taxes and overhauling its social security system.

Greece now finds itself mired in a deep recession, and Venizelos said the economy could contract by more than the 3.5 percent initially predicted this year. That was later revised to 3.8 percent.

"Now there is a breadth of predictions which says it could be above 4.5 percent, and we'll see where it'll be," he said. Although hoping for the "most optimistic result," Venizelos said "the truth is that the circumstances, both domestic and international, are exacerbating the recession."

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Business writer Gabriele Steinhauser in Brussels contributed.