Venizelos Says Greek Loan a Priority as Papademos Takes Control

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AppId is over the quota
November 13, 2011, 9:01 AM EST By Marcus Bensasson, Natalie Weeks and Maria Petrakis

(See EXT4 for debt crisis news.)

Nov. 12 (Bloomberg) -- Greek Finance Minister Evangelos Venizelos said his priority is to ensure the payment of a sixth loan under a European Union-led bailout to avert financial collapse, hours after Prime Minister Lucas Papademos took charge as head of a new interim government.

Venizelos retained his posts as deputy premier and finance minister in the government sworn in yesterday by Archbishop Hieronymos of Athens and All Greece. The clock is ticking on the payment of the 8 billion-euro ($11 billion) loan installment under the 110 billion-euro EU-led rescue agreed on in May 2010.

The tranche must be paid before the middle of December to prevent a collapse of the country’s economy.

“The ministry’s first priority is to secure the payment of the sixth loan on completion of all the necessary actions,” Venizelos told reporters in Athens yesterday. He said that the group of euro-area finance ministers can approve the release of the loan after a telephone conference call.

The new government must implement budget measures and decisions related to an Oct. 26 European bailout amounting to 130 billion euros as well as manage a voluntary debt swap, before holding elections that have been tentatively set for Feb. 19.

“The new unity government will do the best it can to resolve the country’s problems,” Papademos said in a meeting with former Prime Minister George Papandreou after the ceremony. “I believe with the collaboration and unity of all we will achieve the results we want.”

Government Mandate

Health Minister Andreas Loverdos, Education Minister Anna Diamantopoulou and Energy Minister George Papaconstantinou also kept their posts. Anastasios Giannitsis, currently chairman of Hellenic Petroleum SA, will head the interior ministry and Stavros Dimas, deputy leader of the main opposition party, New Democracy, and a former European commissioner, will be foreign minister.

President Karolos Papoulias gave Papademos the mandate to form a government on Nov. 10 after agreement from Papandreou, New Democracy leader Antonis Samaras, and opposition LAOS party leader George Karatzaferis following four days of wrangling after Papandreou said he’d resign.

Papandreou announced agreement on a unity administration on Nov. 9 after his proposal for a referendum on a second Greek financing package roiled markets and angered Greeks and European Union partners.

Merkel Halts Funds

Disbursement was halted by German Chancellor Angela Merkel and French President Nicolas Sarkozy after Papandreou called a referendum on the European bailout terms. He later dropped the idea.

The euro rose 1 percent to $1.3747 at 10:17 p.m. Athens time yesterday. European stocks advanced, with the Stoxx Europe 600 gaining 2.4 percent to 240.98. Greece’s benchmark general index lost 0.9 percent to 755.65. The Standard & Poor’s 500 closed up 2 percent at 1,263.85 yesterday.

The yield on the 10-year Greek bond was little changed at 28.45 percent. Two-year note yields rose 81 basis points to 108.9 percent.

Greece’s new government includes six members of New Democracy and four members of LAOS as ministers or deputy ministers. Papandreou’s Pasok party has 36 members in the Cabinet. The most senior position held by New Democracy is the foreign ministry post by Dimas, who served as EU environment commissioner starting in 2004 until 2010.

Lost Credibility

Dimas, 70, has degrees from the University of Athens and New York University. He worked as a lawyer for the World Bank from 1970 to 1975 and was deputy governor of the Hellenic Industrial Development Bank from 1975 to 1977. He has been elected to the Greek Parliament 10 consecutive times since 1977 with New Democracy, holding various posts including head of the energy and agriculture ministries.

The coalition “can resurrect the lost credibility of the political system,” Dimitris Sotiropoulos, associate professor of political science at the University of Athens, said in a telephone interview. “It is extremely important that more than two parties agreed on someone who hasn’t faced the mistrust and suspicion of voters. That can only help the economy as well as restore some faith in political life.”

Scale of Task

The scale of the task facing Papademos and his new team was underlined on Nov. 10 when the European Commission said the country’s debt will be almost twice the size of the economy in 2012 amid a fifth straight annual contraction. The unemployment rate rose almost two percentage points in August, a record monthly increase, to 18.4 percent.

Greece’s debt will reach 163 percent of gross domestic product this year and jump to 198 percent in 2012, the EU’s Brussels-based executive arm said in its fall economic forecast. That compares with 173 percent predicted by the Greek government in its 2012 draft budget.

Those figures are based on no policy changes and don’t include plans for a writedown of Greek debt that is included in the Oct. 26 plan and may slice as much as 100 billion euros off Greece’s debt burden.

Germany will support Papademos in his task of overhauling the country, according to a message from Merkel to Papademos released by the German government yesterday in Berlin.

Hopes and Expectations

Papademos faces “great hopes and expectations” and his government will have to undertake “reform measures quickly to lead Greece out of the current crisis,” Merkel said in the note. “Germany will stand by you and the Greek people in the difficult mastering of the common challenges in Europe and the euro zone.”

Greece plans to pay lenders 50 cents for each euro the government borrowed under the terms of the bailout plan agreed to at the Oct. 26 summit. Its 4 percent notes due in August 2013 now trade at about 35 cents. Fitch Ratings says the agreement with creditors would amount to a “default event” if implemented, while the International Swaps and Derivatives Association says it won’t trigger credit-default swaps.

Papademos, 64, a former governor of the Greek central bank who oversaw the country’s adoption of the euro, will need the backing of 180 lawmakers in the 300-seat parliament to secure approval for Greece’s second aid package.

A debate on a motion of confidence in the new government may begin in Athens early next week.

--With assistance from Tony Czuczka in Berlin, Paul Tugwell, Eleni Chrepa and Maria Petrakis in Athens. Editors: Kevin Costelloe, Paul Tighe

To contact the reporters on this story: Tom Stoukas in Athens at astoukas@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net; Marcus Bensasson in Athens at mbensasson@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net