It's All Greek to U.S. (Time.com)

As Europe confronts another act in its Greek drama, many are watching and wondering, Is the U.S. next? Could our debt-ceiling debate be the beginning of a crisis that makes the world lose faith in American credit? Anything could happen, but it's worth noting the big differences between Greece and the U.S.

Greece faces three problems. First, it has an uncompetitive economy that cannot generate growth. Its labor is too expensive, it exports few products, and its people are not rich enough to power an expansion. This is not a recent problem. Greece has never been an economic dynamo.

Greece also has a long history of borrowing too much and being unable to pay its debts. Over the past 179 years, it has been in default about 50% of the time. Its debts are huge and could not be paid under any plausible scenario. Finally, because it is part of the euro zone, Greece does not have control over its currency, which means it cannot make its goods cheaper on world markets. (See how the U.S. can avoid its own Greek tragedy.)

The U.S., by contrast, remains one of the world's most competitive economies. It is home to the leading companies in the most advanced industries, houses the largest capital markets and continues to spawn new companies and, indeed, whole new industries. It exports everything from aircraft to entertainment to health care products around the world. Its demographics are strikingly healthy: it will be the only rich country in the world to actually increase its population over the next 30 years - which means more young workers, producers, entrepreneurs and taxpayers. It also has control over its currency. Finally, America's credit history is impeccable. The U.S. has never defaulted on its debt.

Greece faces a set of terrible choices. In order to get more funds to pay its loans and bills, it needs to make draconian spending cuts and tax increases that will surely choke economic growth. The situation in the U.S. could not be more different. The solutions to America's deficit problems are relatively straightforward, almost simple.

Take a few examples. If Congress were to enact the recommendations of the Simpson-Bowles commission, it would reduce the deficit by $3.8 trillion over 10 years. By 2015, the U.S. would have a deficit that was 2.2% of GDP, among the lowest of the world's major economies. Were Congress to do nothing and let the Bush tax cuts expire and return rates to what they were during the Clinton era, that would generate an estimated $3.6 trillion in tax revenue over the next decade, largely solving the short-term deficit problem. (See "Our Greek Tragedy.")

The great truth facing the U.S. is not that we lack solutions to our problems but that our political system seems unable to do anything. With a deficit as large as the one we face, it should be clear that we cannot sort things out through either spending cuts alone or tax increases alone. (Spending on Social Security, Medicare and Medicaid is set to rise from 10% of GDP now to 15% by 2030. That is simply unsustainable.) And yet the two parties seem stuck in adolescent fantasies, one ruling out tax increases, the other ruling out any serious cuts in entitlement spending. Sure, in a country of 312 million, people will disagree. But on the deficit, the disagreement is not a theological one. Debates over money are always amenable to compromise. You can split the difference!

The world has not lost faith in the U.S. economy. People lend America money more cheaply than they do any other country. Our stock markets remain strong. Our companies continue to thrive. But as you watch the dangerous game of chicken in Washington, it is easy to conclude that the U.S. has lost a serious governing class and has become a place where ideology and talk-radio rhetoric have replaced the business of governance. That Republicans would consider playing games with America's creditworthiness is not simply terrible public policy but also, as Richard Stengel pointed out in the previous issue of TIME, almost certainly unconstitutional.

Right now, we could actually learn something from Greece. The current Greek government has faced up to its problems and initiated a series of spending cuts and tax increases and the sale of state-owned assets. What it has proposed dwarfs anything contemplated in the U.S. And the Greek government has made the case to its people patiently and persistently, not pandering to populist sentiment - despite mobs rioting in the streets. It has also set about enacting a longer-term program to make the economy more competitive.

In this respect, America is not like Greece at all, alas.

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Greek austerity budget passes second vote amid protests

Athens, Greece (CNN) -- Greece's Parliament has approved a key law needed to implement a five-year austerity package that was approved by lawmakers a day earlier.

Lawmakers voted 155-136 in favor of the measure, with five voting "present" in the 300-seat house.

The package had been demanded by international lenders -- and its passage should clear the way for an emergency loan to Athens.

But Greece has seen weeks of sometimes violent public protests against the austerity plan, which follows a series of cuts agreed to last year.

European Commission head Jose Barroso and European Union President Herman van Rompuy said they strongly welcomed Thursday's vote.

"This was the second, decisive step Greece needed to take in order to return to a sustainable path," they said in a joint statement from Brussels. "In very difficult circumstances, it was another act of national responsibility."

They said the conditions "are now in place" for a decision on the release of a fifth round of emergency funds to Greece, part of a multi-billion euro deal agreed last year, and for "rapid progress" on a second proposed bailout.

Following the vote, the Greek civil servants' union ADEDY called another rally outside Parliament for Thursday evening.

Before Wednesday's vote, small numbers of demonstrators hurled stones at police, chanted, waved Greek flags and set small fires to protest the austerity measures, which include new taxes and job cuts.

At least 19 police officers were injured Wednesday, police said.

European and international lenders agreed last year to give Greece a $156 billion bailout package as its deficit soared, but were threatening to hold up an installment of $17 billion due soon.

Greece has debt payments coming due in mid-July and needs the $17 billion in emergency funds to be able to pay them -- but lenders, including the International Monetary Fund and the EU, had demanded that it approve the austerity measures in order to get the loan.

A default by Greece would send shock waves through the European banking sector and potentially dent global economic confidence.

German Chancellor Angela Merkel called Wednesday's passage of the austerity measures "really good news," German government spokesman Steffen Seibert said on Twitter.

Eurogroup chairman Jean-Claude Juncker also welcomed the news, saying: "I'm very happy and relieved that the Greek Parliament followed the government and voted in favour of a new program of structural reforms and budgetary adjustment."

Unions oppose the austerity package, but its backers say it is essential to the stability of the Greek economy, the euro, and the global financial system.

Protesters lament that the cuts are being carried out on the backs of those who can afford it least.

CNN's Elinda Labropoulou, Diana Magnay, Frederik Pleitgen and Eve Parish contributed to this report.

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Greek austerity squeaks through, but budget woes remain (The Christian Science Monitor)

Paris – Greek lawmakers under terrific urging from European Union officials today voted 155 to 148 to accept a package of austerity necessary to avert a government default and avoid a feared chain reaction of market turmoil around Europe and the world.

Markets were optimistic before today’s vote that Greek politicians would ignore a howling public that polls as high as 80 percent opposed to the $40 billion in government spending cuts and tax hikes that are the price of the international bailout that's staving off default. Other struggling “peripheral” euro-zone members, including Ireland, Portugal, Spain and Italy, are anxious not to suffer the negative market consequences of a Greek default.

The current Greek crisis, the second in slightly more than a year, is seen by some as a possible harbinger of European disunity, a turning point for greater isolation between the 17 eurozone members. Others see it as a necessary spur towards deeper integration.

Prime Minister George Papandreou framed today’s vote in historic terms and together with new finance minister Evangelos Venizelos, a heavyweight in the ruling Pasok party, pushed through the package and also avoided defections that could have brought the government down.

IN PICTURES: Greece protests

News reports have a Pasok party headquarters in Crete being burned down, and in Athens the outcome of the vote has brought enough tear gas on the street to put 30 people in the hospital. The nation is in the second day of general strikes called by the trade unions. In the past weeks, atmosphere for the mostly peaceful protests in Syntagma Square, epicenter of political anger, has turned violent.

Tomorrow brings another vote in Parliament to enable the austerity legislation. That vote is being treated as pro forma, though some of the specific details – for instance, a huge cut in utility spending – remain sensitive.

Show Greece the moneyToday’s vote, if ratified tomorrow, allows the release of a of $16.5 billion slice from the $142 billion bailout agreed in May 2010, after the Papandreou government admitted its books had been cooked to hide a $350 billion deficit. [Editor's note: This story was edited after posting to correct the size of the bailout package.]

Lacking a growth package and any structural adjustments, many Greek citizens say that agreeing to an austerity package merely sentences them to an unrelenting long-term debt problem that they can’t see a way out of.

“I’m not sure what will happen now. What I see is a lot of political and social polarization in Greece,” says Takis Pappas, an expert on Greek politics at the University of Strasbourg, “and this is what worries me at the moment. Greece doesn’t have room to maneuver. Will the opposition try to take down the government or be silent. The opposition [New Democrats] will likely play hardball.”

'Kicking the can'The fresh $16.5 billion, however, will only sustain the Greek payroll through the summer, causing some analysts to say today’s vote merely “kicks the can down the road.”

Yet analysts at Morgan Stanley, speaking anonymously, say that the new money and time bought by a€?kicking the cana€

Philippe Waechter, chief economist at Natixis Asset Management in Paris, says the vote may be salutary but still doesn’t offer a long term answer.

“Thanks to this vote we can avoid the problematic situation that would arise from Greece's straight default,” Mr. Waechter argues, “but this vote, on a very, very drastic austerity plan, only allows for Greece to benefit from the Troika's [EU, IMF, European Central Bank] next financing tranche. What is preoccupying is that a considerable effort is made to just meet a short-term deadline. What will happen tomorrow if Greece is again in the same situation, which will surely occur if nothing is done to tackle long-term problems?”

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Greek deputies set to back key austerity bill (AP)

By DEMETRIS NELLAS and CHRISTOPHER TORCHIA, Associated Press Demetris Nellas And Christopher Torchia, Associated Press – 23 mins ago

ATHENS, Greece – Greek deputies are poised to back a deeply unpopular austerity bill Wednesday that is essential for the country to get crucial bailout funds and avoid a devastating default on its debts.

The bill, which aims to slash euro28 billion ($40 billion)from the Greek budget, must be passed by Parliament if international creditors are to release the next euro12 billion ($17 billion) installment of the country's euro110 billion ($157 billion) bailout fund — and prevent a default that could have huge repercussions in Europe's banking sector and stoke renewed turmoil in global markets.

An additional bill that details how the austerity measures will be implemented must also be passed in a vote Thursday.

The proposals by the Greek government have sparked violent protests in Athens as well as a rebellion inside the governing Socialist Party. Prime Minister George Papandreou has struggled to convince his party's deputies to back the bill. He replaced his finance minister earlier this month to assuage the concerns of some lawmakers.

The Socialists hold a five-seat majority in the 300-member legislature.

Hours ahead of the vote, it looks like only one Socialist deputy will fail to heed Papandreou's call to back the measures, suggesting that the bill will get at least the 151 votes needed for it to pass. Hopes that the bill will pass have seen European stock markets start the day off strongly and the euro jump towards $1.44.

Alexandros Athanassiadis, many of whose constituents are employed by the Public Power Corporation which is up for privatization, said he maintains his opposition to the bill.

"I have not changed my opinion ... as things stand, I persist in my decision," he told The Associated Press. "I don't think (any other socialist) deputies will vote against. I will be the only one."

Athanassiadis said he opposes privatization of electricity and water companies, but supports the selling of several other state enterprises.

Wednesday's vote comes against a backdrop of violent demonstrations and on the second day of a nationwide general strike which has brought much of the Greek economy to a standstill.

Protesters have vowed to encircle Parliament to prevent deputies from entering and voting for the bill. A massive security operation was under way to avert the blockade, with a large section of central Athens sealed off to traffic.

Scuffles broke out early in the morning as demonstrators attempted to block a major avenue leading to the center of the city, and to Parliament. Riot police responded with pepper spray, and 10 people were treated in a nearby hospital for minor injuries, hospital officials said.

A day earlier, extensive clashes left at least 46 people injured, most of them police, as rioters pelted police with chunks of marble and ripped up paving stones, and authorities responded with repeated volleys of tear gas and stun grenades.

Greece has said it has funds only until mid-July, after which it will be unable to pay salaries and pensions, or service its debts, without the next bailout installment from the eurozone and the International Monetary Fund. The country is also in talks for additional help in the form of a second bailout, which the prime minister has said will be roughly the size of the first.

"Voting these measures is required to maintain our credibility in the (bailout) process," new Finance Minister Evangelos Venizelos said during the debate Tuesday night. "Voting for these measures, regardless of any reservations, is an important, brave act of political responsibility."

But even prominent Socialists who say they will vote in favor are voicing objections.

"The austerity measures are not only harsh, not only unfair, but they are also ineffective," Socialist critic Vasso Papandreou, who is not related to the prime minister, told parliament late Tuesday. Still, she said she would grudgingly vote for the bill.

"Greece has many problems but the real problem is the eurozone," said Papandreou, a former EU commissioner. "Europe should be a zone of solidarity, but it is a jungle where the banks can do what they like."

____

Menelaos Hadjicostis, Elena Becatoros and Thanassis Stavrakis contributed.

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Greek bank governor lashes out at cuts

Greeks protest against austerity measures in front of parliament in Athens, Greece, on June 19Greeks squeezed by socialist government's "solidarity" tax and property tax raiseGreece's central bank governor warns against mounting pressure on Greek taxpayers; advocates reducing tax evasionGreek parliament set to hold a roll-call vote on the medium-term package Wednesday

(FT) -- Greece's central bank governor has lashed out at the socialist government's latest austerity measures ahead of this week's critical parliamentary vote on a four-year austerity package.

George Provopoulos warned that pressure on Greek taxpayers had reached its limits with last week's announcement of €5.6bn ($7.8bn) of additional measures to plug a gaping hole in the €28bn program of spending cuts and tax increases.

"The package doesn't give enough emphasis, in my opinion, to cutting expenditure. The extra burden on those already being taxed has exhausted the possibilities," Mr Provopoulos said in an interview published on Sunday in the Athens newspaper Kathimerini.

The government should focus on reducing tax evasion, he said. "Tackling tax evasion is essential ... to strengthening a sense of justice and increasing the degree of consensus for the medium-term program."

Mr Provopoulos's remarks came as the governing socialists tried to rally support for the package, despite a threat by five disaffected deputies to withhold their votes, a move that would wipe out the socialists' majority in parliament. With 155 of the 300 seats, the socialists face the possibility of having to rely on support from dissident conservatives to approve the package and avert the possibility of Greece defaulting in July.

Parliament is set to hold a roll-call vote on the medium-term package on Wednesday following a three-day debate. A second vote is due on Thursday to approve an enabling law to ensure the package can be swiftly implemented.

Both pieces of legislation have to be approved before the European Union and International Monetary Fund will release another €12bn tranche of Greece's current loan, and move ahead with negotiations on the country's second bail-out.

Evangelos Venizelos, the deputy prime minister and finance minister who agreed the latest measures with the EU and the IMF, said they were essential for Greece to draw down the next loan tranche.

"I know these measures are tough and in many respects unfair," he said. "But it was the only way to complete the [EU-IMF] negotiations and get the loan."

As a result, annual taxes on property were raised while the tax-free income allowance was slashed. An annual "solidarity" tax was imposed on salary earners for the duration of the medium-term program.

The measures have angered middle-class Greeks who feel they have been unfairly squeezed because of the socialists' reluctance to tackle tax evasion by self-employed professionals and a group of Athenian business "oligarchs" who make generous contributions to party finances.

George Florides, a socialist former deputy finance minister who resigned his parliamentary seat last week, said: "Governments have shown no political will to crack down on tax officials or tax evaders."

An opinion poll published in the Ethnos newspaper on Sunday showed the conservative opposition leading the socialists by 1.4 points. Half of the respondents supported the medium-term package, but wanted some renegotiation, according to the poll.

© The Financial Times Limited 2011

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London shares jump after EU deal on Greek debt (AFP)

LONDON (AFP) – Share prices jumped in early London trade on Friday after Europe reached a deal to avoid a Greek debt default.

London's benchmark FTSE 100 index climbed 78.01 points or 1.38% to at 5,752.39 at 8:29 am.

Greece, the EU and the IMF agreed early Friday on the final details of a 28 billion euros ($40 billion) savings plan that Athens needs to implement over the next five years in order to obtain cash to pay off its immediate debts.

The European Commission said the deal among international backers on the ground in Athens now has to be "translated into concrete legislative measures" by Greece.

However, investors are still nervous as they wait to see if Prime Minister George Papandreou can get his austerity measures though parliament next week.

But energy stocks were weak after the International Energy Authority's decision to release 60 million barrels of oil from emergency reserves, dealers said.

The agency said it made the move to make up for lost output in Libya and to give the global economy relief from high energy prices. It is only the third time the Paris-based group has taken such a step.

On the London market, natural resources stocks were the biggest gainers, with Antofagasta gaining 3.07% to 1,275 pence, Randgold adding 2.77% to 5,015 pence, Xstrata rising 2.73% to 1,277.50 pence and Kazakhmys up 2.72% to 1,285 pence.

Satellite communications operator Inmarsat was the only FTSE-100 faller, shedding 0.79% to 562.50 pence.

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Why Greek Tumult Signals the Coming of Europe's Own 'Arab Spring' (Time.com)

Are the youth-led protests rocking Greece and other European countries a sign Arab Spring uprisings have jumped the Mediterranean? Kinda-sorta, say experts watching these movements. They warn that even if democratic systems in Europe can't be compared with the brutally authoritarian regimes under fire in the Arab world, the angry youth on both sides of the Mediterranean share a conviction that existing social structures - and the leaders responsible for them - are simply unable to deliver on their people's aspirations. Getting ahead through playing by the system's rules has become an increasingly remote possibility for many young Europeans, and the result is a growing risk that the explosion of anger on Greece's streets this week will be repeated and with greater intensity, both there and elsewhere.

"This movement is very representative of the tensions all European youth is experiencing," Dominique ReyniE, a political scientist and general secretary of the Paris think tank Foundation for Political Innovation, said in an interview this week with the daily le Parisien. "(Young) Spaniards denounce a society in which they can't get a foothold, and show total defiance for all its institutions. Their reaction breaks with traditional political models, and has no doctrine or platform. The Greeks were already protesting in the same manner. Other very vigorous protest movements will also take place in Europe. This new generation is more combative in political and democratic terms. The current crisis has set these young people to a boil." (See why the Grek government is struggling.)

Of course, the differences in political realities mean Arab autocracies and European democracies can't be fairly compared. And the economic stagnation afflicting many European still represent a level of affluence and opportunity beyond the grasp of under-developed Arab countries - one reason why many still migrate to Europe. Nor is the brutal response to protest in Syria or Libya conceivable in Greece, Spain, or the UK - where recent demonstrations have at times turned violent. Still, despite the difference in circumstances, there's a strong shared feeling among the mobilized publics on both continents that the system fails them. And with their elected leaders incapable of changing the situation, young Europeans are figuring it's time to change the rules of the game.

"We don't have the dictatorships, but it is, in a European context, the Arab Spring moment of people saying they are no longer getting their part of the deal, and telling leaders failing to deliver that things are going to change," says Denis Muzet, president of the Institut MEdiascopie public research organization. "This can be in the form of demonstration - even violent protest in some cases - or in how people vote. In France, we're hearing people not only often say they're planning to vote against ruling conservatives, but then hold whomever wins fully accountable for their actions,and their results. This isn't just about political alternation any more - meaning the left is going to find itself under considerable pressure on clarity and performance if it manages to win elections here next year."

Alienation from the social contract in Europe increases the further one descends the age scale, particularly when it comes to patience with the ballot box as an instrument of change. The recent nearly two-week sit-in by protestors in Madrid wasn't just protesting government austerity measures; young Spaniards were demanding an entirely new political and economic system. That sentiment spread to Portugal, is loudly echoed in Greece, and periodically crops up in elsewhere in Europe. (See photos of Greek protestors clashing with police.)

That radical perspective among younger people on how society is organized may not dissipate once Europe's economies begin to turn around, because a growing portions of young Europeans feel their societies no longer offer them the same prospects for prosperity that their parents had. This despair at having a career - or even an independent life as commonly understood - is not entirely new, and pre-dates the Arab uprisings. But it's both spreading and deepening, prompting younger Europeans to follow the example of their Arab peers and taking to the streets to press for changes in a post-World War II social order that can't accommodate their aspirations. Like the Arab uprisings, unrest among European youths isn't uniform in its expression or duration. ReyniE says the level of despondency and lack of faith in current social systems varies greatly across Europe - higher in southern and eastern European nations, lower in northern countries that began altering their societies and economies years ago in anticipation of changes on the way. But findings in his foundation's recent global study, "2011, World Youths" shows that some commonalities exist across Europe. And those may well gel to create new waves of protest in Europe's near future.

For example, the study showed that while European youths generally felt optimistic about their own individual outlook for the future (a view characteristic of young Americans), they were decidedly more pessimistic about the future of their respective countries (an attitude popular among young Greeks). (See "Germany and France Reach Greece Deal, But Problems Remain.")

Meanwhile, with many European youths having little hope for getting a good, well-paid, career-promising job within what's currently a blocked economic and business set-up, a large portion of them want their country's social models to change. In an unprecedented shift, the survey found that young people no longer want to support social programs and retirement systems for older generations viewed as having sucked all the cream away. Expect more clashes on how Europe's shrinking economic pie is divvied up. Says ReyniE in le Parisien:

The conflict between the generations is going to be very hard. The aging of the population means that older people will mechanically absorb more and more of the collective wealth. Young people will have to pay for that. Just as they'll have to repay the debts that were taken on to finance our social models and current standard of living - a standard they aren't benefiting from themselves. On top of that, older people continue to be assigned the responsibility of leaving little (employment) room for younger people.

Those grievances are quite different from those of the Arab Spring, of course, except in the failure of politicians to offer credible solutions.

"The politicians aren't interested in young people, because they don't understand them," ReyniE says in le Parisien. "But also, from an electoral point of view, young people aren't bothered with because they don't vote. In the last European elections, 80% of the 18 to 24 year-olds abstained".

Be that as it may, with 18 to 24 year-olds on the planet now numbering 1.1 billion - the largest youth population ever since global demographic records have been kept - European politicians may soon find themselves having to deal with "uninteresting" young people decide to step up efforts to make their political differences in protests and street clashes with cops, rather that in the ballot boxes their parents favor.

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Greek PM warns against default as Europe meets on aid (Reuters)

ATHENS/LUXEMBOURG (Reuters) – Prime Minister George Papandreou asked Greeks on Sunday to support austerity steps and avoid a "catastrophic" default, as European finance ministers discussed extending tens of billions of euros of aid to Athens.

Addressing the Greek parliament, Papandreou appealed for the nation to accept deeply unpopular tax hikes, spending cuts and privatisation plans which international donors have demanded as a condition for the aid.

"The consequences of a violent bankruptcy or exit from the euro would be immediately catastrophic for households, the banks and the country's credibility," Papandreou said at the start of a confidence debate on his new crisis cabinet.

Greek officials have said the country will face default in mid-July if the European Union and the International Monetary Fund do not hand over a 12 billion euro tranche of emergency loans by then..

Euro zone finance ministers began a two-day meeting in Luxembourg on Sunday evening to decide whether to disburse that tranche, part of a 110 billion euro ($156 billion) bailout of Greece launched in May last year. They will also discuss proposals for a second bailout that could be worth some 120 billion euros and keep Greece funded through 2014.

Spain's economy minister told reporters on the sidelines of the meeting that ministers hoped to reach agreement on Sunday night on disbursement of all of the next loan tranche to Greece.

"We're still discussing... We hope (to have a deal). That's why we are here tonight," Elena Salgado said.

The finance minister of Germany, where political opposition to spending taxpayers' money on bailing out Greece has been rising, was more equivocal.

"We will work today and tomorrow so that we get as far as possible," Wolfgang Schaeuble said. "Greece must fulfill all the necessary preconditions so that it can be paid out on time. Europe will do its part.

OPPOSITION

Facing public protests and dissent in his Socialist party, which has a slim majority in parliament, Papandreou reshuffled his cabinet last week and called a confidence vote for next Tuesday in an effort to push his reforms through the legislature this month.

Political analysts think he is likely to succeed, but public opposition means it is unclear if he can stick to austerity over the long term. Over 10,000 people protested in front of parliament on Sunday, chanting: "We won't pay! We won't pay" and thrusting their open hands forward in a traditional insult.

Opposition leader Antonis Samaras demanded in parliament that Papandreou quit to pave the way for early elections and a renegotiation of the terms of Greece's current bailout.

Greece, with a public debt worth more than 150 percent of its annual economic output and rising, missed debt targets in its initial bailout plan partly because of a deep recession.

In the proposed new bailout scheme, private investors would for the first time share the burden, pledging to maintain their exposure to Greece by voluntarily buying about 30 billion euros of sovereign bonds as their current holdings matured.

But such a debt rollover would be complex and controversial, financially and legally. Key details have not been worked out, and euro zone finance ministers are expected to discuss them in Luxembourg.

Yields on bonds of indebted euro zone states rose sharply last week as markets speculated Greece might fail to obtain more aid. Many investors think that even if it does, its debt problem is so large that a more radical solution is needed, such as imposing deep losses on its creditors.

The head of Pimco, the world's largest bond fund, said in an interview published on Sunday that Europe risked wasting more money for nothing if it kept pumping billions into the weak Greek economy.

"After a year, every indicator has unfortunately worsened, despite the incredible quantity of financial assistance," Mohammed El-Erian told Italy's Corriere della Sera daily.

"All of this has terrible human consequences and it's associated with a transfer of liabilities from private creditors to European taxpayers. Why? Very little is being done to deal with the excess of public debt, and the conditions for higher growth are not being put in place.

"Further on, if this approach is kept up, more money will be wasted to save private creditors and the risk of a disorderly restructuring of the debt will be greater.

EUROPE

There were signs across Europe on Sunday of tensions over austerity measures and economic reforms.

In Madrid, tens of thousands of people marched against the government's handling of an economic slump and the "Euro Pact," which was agreed by euro zone politicians to improve competitiveness across the bloc and has led in Spain to reforms giving companies greater power to hire and fire.

In Dublin, which obtained an 85 billion euro bailout last year, the Sunday Times quoted an unnamed European Central Bank source as criticising Finance Minister Michael Noonan's call to impose losses on senior bond holders in two failed banks.

"It was a good soundbite for the cameras ... Considering the Greek situation, it was the worst possible time for him to make an impression," the source was quoted as saying. The ECB has opposed making those bond holders pay on the grounds that it might destabilise financial markets.

"By the time it comes to paying back the bonds next autumn, Greece may have defaulted. If Greece defaults, Ireland is next," the source said.

In Milan, Prime Minister Silvio Berlusconi said Italy would take the measures it considered right to keep its public finances in order. On Friday, credit rating agency Moody's warned it might cut Italy's rating out of concern over Rome's ability to reduce its heavy public debt burden.

(Writing by Andrew Torchia; Editing by Andrew Heavens)

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EU finance ministers wrangle over Greek debt (AP)

LUXEMBOURG – The drama over Greece's imploding finances moved Sunday to Luxembourg, where eurozone ministers must approve an immediate loan to keep Greece from defaulting next month but will wrangle fiercely over lending terms for the billions needed in a second massive bailout.

The meeting of the 17 eurozone nations comes after a tumultuous week that saw rioting on the streets of Athens, a Greek Cabinet reshuffle, days of market turmoil that sent borrowing costs spiking and Germany softening its demand on the extent that banks and other private lenders share the risks of any new loans to Greece.

On only his third day in office, Greece's new finance minister, Evangelos Venizelos, faced his first big test Sunday — negotiating the vital second bailout package with Greece's frustrated international creditors.

In Athens, Greek Prime Minister George Papandreou confirmed that talks were under way over the second bailout, which he said was "roughly equal" to the first euro110 billion ($157 billion) rescue the country accepted over a year ago.

The finance ministers can't be happy that their previous estimate for solving Greece's debt problems was so far off-base. And they will press Venizelos on many fronts — to control Greece's budget overruns, to solve setbacks in cost-cutting reforms, and to push ahead with a euro50 billion ($70.5 billion) sell-off of Greek government assets.

The eurozone and the International Monetary Fund have based their approval of new money on Greece passing budget cuts worth some euro28 billion ($40 billion) before the end of the month, as well as starting the unpopular privatization program. Those measures have already sparked angry protests and forced Papandreou to reshuffle his government.

The IMF and Germany, the two single biggest contributors to Greece's existing bailout, have already had to back away from previous demands as panic swelled in markets around the world, giving Europe and Greece more space to sort out their differences.

Venizelos sounded upbeat on the way into the conference center.

"It is a great opportunity for me to repeat the strong commitment of the Greek government and the strong will of the Greek people for the implementation of the program," he said.

The IMF has indicated it will sign off on its portion of the next loan installment even if a new, longer-term bailout program has not yet been finalized. That euro12 billion ($17 billion) must land in Greece's account by mid-July to repay billions of euros in maturing bonds and fend off a default.

However, Belgian Finance Minister Didier Reynders on Sunday raised the possibility of only releasing euro6 billion ($8.6 billion) for the moment. That would cover a first round of bond redemptions in July, but would leave Greece short of money for a new bond repayment deadline in August.

Germany, meanwhile, softened its stance on the second Greek bailout, with Chancellor Angela Merkel saying any private-sector contribution to the second bailout will be voluntary. That won't spark a partial Greek default that would slam Greek and European banks, roil financial markets and affect other debt-challenged nations like Portugal, Ireland or Spain.

The exact role of the private sector in the new bailout will feature prominently in talks that will continue Monday morning. Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the eurozone finance meetings, told reporters not to expect a final deal Sunday night.

Just over a year after its first bailout, Greece is trailing its financial goals. Without passing the new austerity measures, its budget deficit will remain above 10 percent of economic output this year — far from the promised 7.5 percent. The country's debt is expected to reach 160 percent of gross domestic product by the end of 2011, while its economy continues to shrink.

The harsh austerity measures and the bleak outlook for the depressed Greek economy and the resulting street protests are increasingly challenging the survival of Papandreou's government.

Opening a three-day parliamentary debate that will culminate in a confidence vote Tuesday, Papandreou blamed Greece's bloated and inefficient state sector for bringing the country to its knees. He vowed deep changes with a fall referendum on the constitution that would make it easier to get rid of inept officials or workers.

Many experts say Greece's debt load is too great and expect it to eventually default. The European Central Bank, however, has been adamant that a Greek default is unthinkable because it could set off an unpredictable financial chain reaction.

In Germany, skepticism persisted over whether another massive aid package will be sufficient to stabilize Greece, with several lawmakers from Chancellor Angela Merkel's coalition government saying a Greek debt restructuring is all but inevitable.

"We need a haircut on the debt — and that won't happen voluntarily," conservative lawmaker Manfred Kolbe told the German news magazine Der Spiegel.

Germany, as Europe's largest economy, funds much of the bailouts to weaker members, a fact that has angered many ordinary citizens. A poll showed that almost every second German thinks Greece should leave the eurozone and return to its old individual currency.

In the poll published by Focus news magazine, 46 percent said Greece should return to the drachma, but 47 percent of the 1,000 people surveyed by pollster TNS Emnid said Greece should remain in the eurozone. No margin of error was provided for the poll.

___

Demetris Nellas in Athens and Juergen Baetz in Berlin and David McHugh contributed to this report.

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Greek PM asks for support to avoid "catastrophic" default (Reuters)

ATHENS (Reuters) – Greek Prime Minister George Papandreou on Sunday appealed to parliament to support a new cabinet appointed to push through painful economic reforms, saying a debt default would be catastrophic.

Papandreou asked parliament to pass a vote of confidence in a reshuffled cabinet he appointed on Friday to push through a five-year package of new tax hikes and spending cuts agreed with international lenders.

The prime minister, whose own political survival is on the line over the package, said the country was at a critical crossroads and its problems could not be solved by rejecting international help.

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Greek PM makes rival finance chief to shore up support (Reuters)

ATHENS/BERLIN (Reuters) – Greek Prime Minister George Papandreou sacrificed his unpopular finance minister on Friday and put his main socialist party rival into the job in a bid to force through an austerity plan to avert bankruptcy.

The appointment, which analysts said was a second-best after Papandreou failed to persuade respected former European Central Bank vice-president Lucas Papademos to come aboard, came just before a crucial Franco-German summit to discuss future aid to Athens.

The elevation of Defense Minister Evangelos Venizelos to the finance ministry was aimed at securing party backing for crucial tax rises, spending cuts and sell-offs of public assets required for the EU and IMF to disburse emergency loans to keep Greece afloat next month and avoid a default which could unleash global financial turmoil.

Outgoing Finance Minister George Papaconstantinou, who negotiated a first 110 billion euro bailout for Athens last year and had the confidence of international lenders and financial markets, was shunted aside to the environment ministry in a crisis-driven reshuffle.

"Venizelos is politically powerful and that might bode well for the implementation of fiscal consolidation, even though he has no track record in financial matters," UBS analyst Alexander Kyrtsis said.

Initial Greek market reaction was positive with bank shares rising by as much as 4 percent and the Athens stock market index up 2 percent.

But bond markets remain spooked by fears of a Greek default and most economists are overwhelmingly skeptical that Greece can ever repay its debt mountain, which has reached 340 billion euros or 150 percent of the country's annual economic output.

Reuters' calculations based on 5-year credit default swap prices from Markit show an 81 percent probability of Greece eventually defaulting on its debt based on a 40 percent recovery rate.

In Berlin, German Chancellor Angela Merkel and French President Nicolas Sarkozy will try to overcome sharp differences on how to involve private investors in the second rescue plan without sparking carnage in financial markets.

A German minister said he expected them to strike a compromise after weeks of wrangling that has rattled markets.

"I believe the meeting today will yield a solution," German Deputy Foreign Minister Werner Hoyer told ZDF television. "I am sure they will come to a compromise."

The European Central Bank and European Commission have warned that any form of private sector involvement that causes a "credit event" or a downgrading of Greek debt to default status could wreak devastating damage on the euro zone.

BOND MARKETS RATTLED

Battered by strikes, protests and a string of resignations in his PASOK party, Papandreou has vowed to drive through his unpopular reform program for the sake of stability in Greece.

The political drama in Athens, where mass street protests turned violent and efforts to form a national unity government collapsed on Wednesday, and the splits in the EU continued to rattle bond markets on Friday.

The yield on 10-year Greek government bonds spiked to a record high of 18.9 percent just before the reshuffle was announced, and the cost of insuring Greek debt against default also hit a new all-time peak.

There were some signs on Thursday of growing tension in interbank lending on money markets, as occurred when the Greek debt crisis erupted early last year.

In the latest warning from the ECB, policymaker Yves Mersch said a "disorderly insolvency" would have devastating effects for the whole currency bloc and "a new financial crisis would be more than likely."

The European Union's top economic official, Olli Rehn, told a Finnish newspaper he was sure the EU and the International Monetary Fund would release a crucial 12 billion euro loan tranche in early July to keep Athens from defaulting.

Rehn acknowledged it would take longer to put together a second rescue package for the heavily indebted state, due to differences over how to involve private investors, but he called for decisions by mid-July rather than leaving the issue until September, as EU paymaster Germany is suggesting.

China weighed in, saying it had a vital interest in the euro zone overcoming its debt woes and had increased its holdings of euro debt, but gave no figures or timeframe.

"Whether the European economy can recover and whether some European economies can overcome their hardships and escape crisis, is vitally important for us," Vice Foreign Minister Fu Ying told a media briefing in Beijing.

Rehn said he expected euro zone finance ministers to take decisions on a successor program for Greece on July 11.

But two sources briefed by the German government said Berlin wanted to postpone agreement on a new 120 billion euro program, including 30 billion in privatization proceeds, until September due to disputes over how to involve private investors.

Backed by the Netherlands and Finland, Germany wants a "voluntary" debt swap in which bondholders would be given new bonds with a seven-year maturity, but credit rating agencies have warned they would treat that as a selective default.

That could prompt the ECB to refuse to accept Greek bonds as collateral, depriving Greek banks of vital liquidity on which it is totally dependent.

The European Commission, the ECB and France favor a softer form of private sector involvement under which banks would agree to roll over Greek bonds as they mature and are redeemed.

Fitch Ratings appeared to open the door to a possible compromise on Wednesday by saying that while it would treat such a rollover as a "restrictive default," it would keep Greek bonds rated at CCC.

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Greek PM reshuffle plan in doubt as deputies quit (Reuters)

ATHENS (Reuters) – A string of parliamentary resignations on Thursday threatened to thwart Greek Prime Minister George Papandreou's plan to reshuffle his cabinet and pass new austerity measures needed to save Greece from default.

The political turmoil raised uncertainty over the Socialist cabinet's five-year plan for tax hikes, spending cuts and state property selloffs demanded by its bailout lenders, spooking investors who fear the problems could infect global markets.

The reshuffle reflects the unpopularity of the austerity measures and follows the failure of talks over a unity government on Wednesday that drew disappointment from European Union officials who have appealed for Greece's political elite to unite behind the belt-tightening.

Analysts said it was increasingly unclear whether Papandreou would be able to form a new governing team and get the measures approved amid the political chaos, which follows nationwide strikes and violent protests in Athens on Wednesday.

"It will be very hard now to find good people to form a government now. They don't trust (Papandreou) after all the flip-flops he has made," said former finance minister Stefanos Manos. "Who will make privatizations now in all this turmoil?"

Two lawmakers in the ruling party stepped down on Thursday and will be replaced by other party members.

A ruling party deputy said that there was a lack of leadership in the country and that lawmakers were gathering signatures to force a caucus meeting of the parliamentary group later in the day.

"This does nothing to reduce fears that some form of default will eventually take place," Ben May of Capital Economics said after the resignations.

BUYING TIME

World stocks hit a three-month low on Thursday, the euro slumped to a one-month trough and top-rated government bonds rose as concerns intensified over the crisis.

Euro zone sources said the International Monetary Fund was expected to pay its share of Greece's latest aid tranche quickly to buy the EU more time to finalize a package to keep Greece afloat through 2012 and beyond.

But in a reflection of growing international frustration at the lack of political will for reform in Greece, the European Commission warned that Athens must implement its program of austerity measures to keep receiving aid.

"The government and the political forces in Greece have to take the decisions, assume their responsibilities in order to support this program," commission spokesman Amadeu Altafaj told a regular news briefing.

A senior IMF official said the Fund was very concerned by the political turmoil but stood ready to help if Athens approves its austerity plan.

If the reshuffle goes ahead, the new governing team will face a confidence vote late on Tuesday, a parliamentary aide told Reuters.

Papandreou may seek to replace his finance minister, George Papaconstantinou, the main architect of hugely unpopular budget cuts demanded by the EU and the IMF as part of Greece's 110 billion-euro bailout last year.

Former ECB Vice-President Lucas Papademos is most frequently mentioned as a candidate to replace Papaconstantinou, who Greek media have said may be on his way to the Foreign Ministry.

Papademos's office said he was out of the country on Thursday and not available for comment.

AUSTERITY

Tax rises and spending cuts worth 6.5 billion euros ($9.4 billion) are planned this year, doubling already agreed measures that have driven unemployment up to a record 16.2 percent and extended a deep recession into its third year.

The European Union and International Monetary Fund have demanded the new 5-year austerity plan as a condition of releasing the next tranche of 12 billion euros in aid, which Athens needs to pay back debt that matures in August.

"I can't believe they are doing this (political wrangling), with all the money they are being offered," a European central banker told Reuters on condition of anonymity.

The plan includes new luxury taxes, a crackdown on tax evasion and tax rises on soft drinks, swimming pools, restaurant bills and real estate. The euro zone member's 750,000-strong state workforce would be cut by a fifth. It also aims to raise 50 billion euros by selling off state-owned firms.

On Wednesday, tens of thousands of angry Greeks massed outside parliament to demonstrate their hostility to the draconian economic measures, while rioters hurled petrol bombs at the Finance Ministry and police fired volleys of teargas to break up the crowds.

Some Greek media a failed attempt by Papandreou to create a unity government on Wednesday had sown confusion.

"Papandreou behaved with eccentricity and created a chaos without precedent," the daily Kathimerini said in an editorial.

The political machinations and international haggling over the terms of a second bailout have battered bond markets, and the cost of insuring Greek debt against default soared to yet another record high on Thursday.

Greek opposition leader Antonis Samaras said the only way out of the crisis was early elections, but analysts said that would only happen if the government failed to get a vote of confidence.

"I think that Greek politicians are mature enough and will vote for the mid-term plan," said Gikas Hardouvelis, chief economist at EFG Eurobank. "What they don't have is the maturity to implement the hard austerity measures that it includes."

(Additional reporting by Tatiana Fragou, Renee Maltezou and George Georgiopoulos; Writing by Michael Winfrey and Hugh Lawson; Editing by Peter Graff)

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Greek protesters block Parliament

Greek riot police officers confront a protester during a strike against government austerity plans in Athens on Wednesday.NEW: At least 25,000 people turn out to keep lawmakers from debating budget-cutting measuresNEW: Police and civilians are mildly injured in clashes, police sayUnions are holding a 24-hour strike and plan to support the protestsGreece is getting international help to deal with its budget deficit

Athens, Greece (CNN) -- Greek anti-government protests turned violent Wednesday, as protesters threw petrol bombs at the Ministry of Finance and police fired tear gas at protesters, police said.

Tens of thousands of protesters had vowed to form a human shield around the Greek Parliament to prevent lawmakers from debating new austerity measures Wednesday afternoon.

Between 25,000 and 27,000 demonstrators were on the streets of the capital by the middle of the day, police said. Two policemen and four civilians were mildly injured and 12 people were arrested, they said.

Labor unions are holding a 24-hour strike to protest the measures and will be marching to Parliament to join forces with the protesters.

The strike has brought public services to a grinding halt and kept most transport networks at a standstill, although flights have not been affected.

Rallies have also been scheduled to take place in other Greek cities.

On June 9, the Cabinet approved a tough five-year plan for 2011-2015 and introduced a bill in Parliament to put the measures into effect.

The government has said that the passage of these additional measures is essential to Greece's securing the fifth tranche of a 110 billion euro ($158 billion) bailout package that Greece signed with the European Union and the International Monetary Fund to prevent the country from defaulting on its debts.

Greek Finance Minister George Papaconstantinou has said the country hopes to secure a second bailout deal this month.

The search for a second bailout comes after it became evident that Greece is extremely unlikely to raise capital from private markets in 2012 due to the prohibitively high interest rates it would face.

Papaconstantinou has also indicated that European Union members may support calls to get the private sector involved.

Despite the harsh austerity measures that the Greek government has imposed, it is failing to close its budget deficit as quickly as hoped. The country is in recession amid its fiscal restructuring program.

The finance minister has defended the five-year austerity plan, saying it is needed to keep Greece solvent. The new measures will include a number of additional taxes and job cuts in the public sector by a further 20%.

Protesters have been gathering outside Parliament for more than three weeks as part of an ongoing peaceful demonstration against austerity measures, with some camping in the square facing Parliament.

They call themselves "The Indignants," a grass-roots movement which takes its name from the Spanish campaign of "Los Indignados" who have been holding similar mobilizations against austerity across Spain.

In a statement the group has said it would keep going until the politicians and technocrats it blames for what is happening in Greece "go away."

The credit rating agency Standard & Poor's on Monday cut Greece's rating to just two notches above default, among the lowest in the world. The agency has said a default on some debt appears "increasingly likely."

Unemployment in Greece has skyrocketed to above 16 percent in May, a 40% rise since last year.

The European Commission has said Greece's economy was expected to shrink by 3.5% this year.

Prime Minister George Papandreou has pledged to continue with reforms no matter what the political cost. He has said that the alternative, a default, "would be a catastrophe."

The five-year austerity plan is expected to face a vote in Parliament in before the end of the month.

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Greek PM rebuffs austerity opponents, vows June vote (Reuters)

ATHENS (Reuters) – The Greek government defended its new austerity package from attacks in parliament on Friday, saying it was the only way to stave off bankruptcy, and made a new call for opposition parties to back the plan.

Prime Minister George Papandreou's plan almost doubles the belt-tightening measures for 2011 already agreed with the International Monetary Fund and the European Union, after the lenders judged that Athens had missed goals outlined under its bailout.

The ruling Socialist party has 156 deputies in the 300-seat house but growing numbers of its members are expressing unease at proposals including cutting spending and raising taxes to reduce the deficit by 6.5 billion euros more this year than first planned.

Papandreou is anxious to pass the plan for more austerity through 2015 despite strikes, mass street protests and dissident voices within his own ruling Socialist party.

"The medicine is not pleasant and the treatment requires devotion and commitment," he told parliament.

"No prime minister of any country wants to go out with a beggar's tray and collect money from other countries ... I certainly don't, but I do it for Greece."

Papandreou is fighting to get not only opposition parties but also his reluctant PASOK party behind the strategy, a condition for receiving more aid from international lenders who threw Greece a 110 billion euro ($160 billion) emergency funding lifeline last year.

PROTESTS AT PARLIAMENT

According to a weekly schedule released by parliament, lawmakers will start debating the midterm plan in the chamber's economic affairs committee on Wednesday.

That will coincide with a nationwide strike by labor unions expected to draw tens of thousands of demonstrators to Syntagma square, parliament's front stoop and the site of two weeks of nightly grassroots protests.

The square is also the convergence point of daily marches by staff in firms earmarked for privatization who oppose the government's pledge to raise 50 billion euros in the selloff of state-owned companies by 2015.

In a televised address to the nation, Papandreou invited proposals for the plan from opposition parties and called for cooperation to improve Athens' position in talks with Brussels ahead of a June 23-24 EU summit.

"I call on the leadership of all parties to cooperate," he said in a televised announcement. "There are many and important points where we converge. With a national consensus, we can negotiate jointly with our partners."

In a move aimed at reducing resistance by the main opposition New Democracy party to the measures, Finance Minister George Papaconstantinou said the government was considering submitting a new tax bill in September cutting VAT and corporate taxes and said he hoped parliament would approve the mid-term plan by the end of June.

The IMF and EU have demanded wider political consensus in Greece before they give the debt-ridden euro zone member more cash. But the main opposition groups have vowed to vote against the new measures, saying they are choking economic growth.

"The mid-term plan is unreliable, unjust and ineffective. It is a de facto confession of the failure of the bailout," New Democracy party spokesman Yannis Michelakis said in a statement.

European officials are still trying to work out a plan which hits private investors for some of the cost of the new funding plan, expected to be worth around an additional 120 billion euros including 30 billion from sales of Greek state assets.

Figures on Thursday showed the economy is in worse shape than initially feared, with gross domestic product tumbling 5.5 percent year-on-year in the first quarter.

(Additional reporting by Angeliki Koutantou; Writing by Dina Kyriakidou and Mike Winfrey; Editing by Hugh Lawson)

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Greek police hold suspected FBI hacker

An 18-year-old is detained on suspicion of attacks on the FBI and Interpol, Greek police sayHe is also accused of illegally obtaining credit cards through hackingHe is charged with computer fraud and forgery as well as illegal weapons possession

Athens, Greece (CNN) -- Greek police arrested an 18-year-old suspected of having hacked into the electronic systems of the FBI and Interpol, they announced Wednesday.

He reportedly also took over the computers of unsuspecting users, accessed their data and used it to obtain new credit cards in their names. A raid on his home turned up over 120 credit cards and thousands of euros in cash, police said.

He faces charges of computer fraud, forgery, illegal violation of privacy, and illegal weapons possession.

The teen, who was not named, was arrested at his home in Athens, according to the Greek police electronic crime squad.

They seized computers and related equipment as well as flares, shotgun cartridges and a homemade incendiary device, they said.

Greek police said they had been seeking the youth for two years, after attacks that took place in February 2008 and February 2009.

U.S. and French authorities cooperated with the investigation, they said.

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