Greece: Second Rescue Deal Near?

So now for the hard part of 'saving' Greece a second time in 13 months and hopefully making sure it will be the last.

The eurozone finance ministers met overnight and will convene later today, our time, to hammer out the shape and nature of the rescue package.

In Athens, Greek Prime Minister George Papandreou called on voters and fellow MPs to support the austerity package.

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Analysts said that parliament - where Mr Papandreou's socialist party holds a six-seat majority- is expected to approve the new government in a roll-call vote of confidence on Tuesday night, our time. The socialists face a more difficult test at a second parliamentary vote due on June 28 to approve the medium-term austerity package, and allow the next tranche of the current EU-IMF loan to be disbursed.

An opinion poll published in an Athens newspaper yesterday showed 47.5% of voters wanted the austerity package rejected and new elections called.

Europe needs an agreement and certainty as soon as it can.

But surprisingly the euro hasn't been that badly damaged by the latest bout of nerves, falling just 0.3% over the week to last Friday.

That included a rally on Friday when Germany and France agreed to help Greece on easier terms.

It is still up 2.5% for the year so far, while the US dollar is down almost 5%, according to Bloomberg figures.

London media reports said major banks based in London have pulled billions of dollars out of the eurozone in recent weeks as fears have grown about the fate of Greece and the common currency.

The withdrawals are part of a general pullback by financial groups around the world, according to the reports.

The move is causing banks in Spain and a couple of other countries to increase their emergency funding deals with the European Central Bank.

Adding to the tensions on Friday was a warning from Moody's on Friday that it may downgrade Italy's debt, thanks to "fragile market sentiment" for deeply indebted European governments.

The rating agency said that as investors grow more risk averse, Italy -- currently rated Aa2, the second-highest rating -- may be unable to sell bonds without offering higher interest rates.

In fact yields on Italian bonds are around 4.8% for the 10 year security, up 1% in the past year (but not as high as the 5.6% Spain is currently having to pay.

On May 20, another of the three major ratings agencies, Standard & Poor's, placed Italy on alert for a possible downgrade.

So the pressure on the rest of the eurozone is rising, regardless of what happens to Greece in the short term.

That means officials must figure out how to design a plan that will encourage investors to roll over expiring Greek debt after German Chancellor, Angela Merkel ended a standoff on Friday night with the European Central Bank over restructuring the country's debt load.

In other words, Germany blinked and abandoned its tough stance that private creditors to Greece had to share the pain and take losses on their current holdings.

There's talk the second package could total 150 billion euros, with that including some of the 2010 package of 110 billion euros.

European estimates put Greece's 2012-14 financing gap at as much as 170 billion euros.

It would be filled by about 45 billion euros of loans, plus around 57 billion euros in unspent aid from the 2010 bailout, roughly 30 billion euros in asset- sale proceeds and about 30 billion euros from creditors.

But first up the fifth tranche of the first package needs to be paid.

That will be a small part of the discussions with the IMF and the EU in Brussels (the Finance Ministers then move to Luxembourg for a meeting starting at 2 am Tuesday, our time).

The EU and IMF agreed to hand over the 12 billion euros of loans to Greece last week, but that has to be ratified.

Greece has more than 6 billion euros of loans, plus some interest payments, due in early July.

If Greece could borrow (and it can't) it would have to pay more than 18% for five years loans.

The IMF and European loan will be extended despite Greece technically being in breach of the original agreement that will get the country through to September.

By then, the second bailout agreement should have been sorted out (hopefully).

But it will all depend on what happens in Greece where voters don't want to pay the cost for the easy years after the country joined the euro and found it could borrow at will and spend even faster, running up huge debts that the then conservative government (the present opposition) covered up and forged and fudged official statistics to hide the true extent of the deficit and the debt burden.

Now the streets of Athens are ablaze and ring to the sound of protest as people object to the latest 28 billion package of tax hikes and budget cuts.

Last week's political crisis was triggered by the Conservatives refusing to agreement to 6 billion in cuts needed to keep the funds rolling in from the EU and IMF.

A game of brinkmanship is developing, with Greece demanding easier terms for the second (and even larger) IMF and European rescue or threatening to tip the whole euro area into crisis by risking a default.

The debate over the austerity package was debated at the weekend and the vote of confidence in the government will now take place Tuesday night, our time, instead of the originally planned Sunday night.

The thinking seems to be, get the money in from the 5th tranche of loans and make sure there's enough to tide the country over until at least September and then hold the vote of no confidence.

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