Greece battles mistrust to target bailout deal

• Acrimony within currency union as mistrust grows
• Talk of delaying all or part of Greek bailout
• Euro hits 3-week low as nerves remain

Greece expressed hope it was within days of finally securing a 130-billion-euro EU/IMF bailout to ease its debt crisis but markets reacted sceptically on Thursday as acrimony grew between Athens and euro zone partners led by Germany.

    Frustrations exploded as Greek President Karolos Papoulias, an 82-year-old veteran of the resistance to Nazi occupation of Greece during World War Two, lashed out at Germany's finance minister for appearing to suggest Greece might go bankrupt.

    Past backsliding on promises by Athens has created a growing mood of mistrust, with German Finance Minister Wolfgang Schaeuble likening Greece to a "a bottomless pit" and asking on Wednesday whether Athens would stick to new promises.

    "I cannot accept Mr Schaeuble insulting my country," Papoulias riposted.

    "Who is Mr Schaeuble to insult Greece? Who are the Dutch? Who are the Finnish?" he asked of critics in two countries which, like Germany, have heaped pressure on Athens.

    Greek officials insisted after late-night talks with euro zone counterparts that they had met the final demands set by the European Union and IMF to seal a second rescue deal needed to avoid chaotic default when debt repayments fall due in March.

    But the euro   slid to a three-week low on the dollar in early Thursday trade as markets focused on a Reuters report that finance officials in the currency union were looking at ways to delay all or part of the rescue deal while avoiding a default. 

    EU sources told Reuters euro zone officials were studying the option of postponing part or all of the rescue deal until after the elections while still avoiding a disorderly default.

    "Confidence has indeed sunk to a low point," Dutch Finance Minister Jan Kees De Jager told Dutch paper Het Financieele Dagblad, suggesting one option was to delay delivering the bailout in full until after a Greek election expected in April.

    "Schaeuble Junta", ran a headline in the conservative Eleftheros Typos newspaper, harking back to Greece's painful spell under military rule during the 1960s and 1970s.

    Greece is pinning its hopes on a fresh meeting of euro zone finance ministers scheduled for Monday after it failed this week to clinch a deal to avert a bankruptcy which could shake financial markets around the globe.

    Finance Minister Evangelos Venizelos said Athens had plugged a 325 million-euro gap in a promised 3.3 billion euros of extra budget savings this year, noting both parties in the government of Prime Minister Lucas Papademos had signed up to austerity measures which already triggered rioting in Athens on Sunday.

    Venizelos said he hoped euro zone officials could tie up all the issues before the ministerial Eurogroup meets on Monday, opening the way for a bond swap deal with Greece's private creditors, known as PSI, which will reduce its debt mountain.

    "These issues will be prepared at a Euro Working Group meeting on Sunday in Brussels so that, with good faith, the final decision for the approval of the (bailout) programme is taken and the public announcement of the PSI is made on Monday," he told reporters after a conference call with euro zone peers.

    Greece had said it must initiate a debt swap deal with private bondholders by Friday to meet a March 20 deadline for the 14.5 billion euros in debt repayments. It was hoping to have the euro zone's backing for its second bailout this week. If that backing now comes on Monday, it is possible the debt swap could start in the middle of next week.

    LINGERING DOUBTS                

    After the three-hour conference call among the 17 euro zone ministers, Eurogroup chairman 

Jean-Claude Juncker said progress had been made but made clear some matters remained open on making sure the bailout plan is carried out in full.    

    "Further considerations are necessary regarding the specific mechanisms to strengthen the surveillance of programme implementation and to ensure that priority is given to debt servicing," he said.

    That was echoed by one government official in Germany, where public opinion is hostile to bailing out Greece.

    "Questions remain that are very important to Germany and other member states about the sustainability of the programme," said the official, who declined to be named.

    Juncker predicted things would fall into place by Monday although any number have deadlines have been set, only to be missed.

    Greek conservative leader Antonis Samaras - tipped to become prime minister after a possible vote in April - gave a written pledge on Wednesday to stick to the austerity package but added that "policy modifications" might be required to boost growth.

    Greece has yet to publicly specify how it will find the remaining 325 million euros worth of budget cuts and the cabinet - which would normally be required to approve such cuts - was not scheduled to meet on Thursday.

    A new survey by the VPRC polling company showed Samaras' New Democracy party getting 27.5 percent, down from its 30.5 percent score in January, but still well ahead of the newly-founded Democratic Left party in second with 16 percent.

    Italian Prime Minister Mario Monti warned on Wednesday that the debt crisis was fuelling resentment within the bloc and rejected the idea of a "goodies and baddies" division between so-called virtuous northern states and profligate southern ones.

 ATHENS, Feb 14 (Reuters) - The Greek government rushed on Tuesday to wring out another 325 million euros in budget cuts to satisfy euro zone finance ministers mulling whether to sign off on a rescue package to save the country from a chaotic default.

    Squeezed between sceptical European capitals and deep anger in Greece, political leaders must also produce written commitments to stick to the terms of the 130 billion euro ($172 billion) bailout before the ministers meet on Wednesday.

    A government official said the cabinet had already a proposal on the table and that Prime Minister Lucas Papademos would chair a session of the government at 3 p.m. (1300 GMT)

    "There is a specific proposal by the government for the 325 million euros to be submitted to the Eurogroup tomorrow," the official, who declined to be named, told Reuters.

    A second government source said: "The government will have a solution before the Eurogroup (meeting of euro zone finance ministers)."

    Greek lawmakers endorsed another 3.3 billion euros in cuts in wages, pensions and jobs on Sunday despite unrest on the streets of the capital, Athens.

    The violence was the worst in years, with dozens of buildings set ablaze, damaged or looted.

    But the bill left unexplained 325 million euros of cuts that the European Union and International Monetary Fund now want clarified before they sign off on the bailout.

    There was no immediate sign that political leaders would put pen to paper to guarantee they will implement the terms of the bailout before and after an election expected in April.

    Antonis Samaras, leader of the conservative New Democracy party and a member of the coalition, has taken a harder line on the austerity measures than others in the coalition.

    He is the frontrunner to become prime minister in April, and while he voted 'Yes' in parliament on Sunday and expelled from the party a quarter of his deputies for rebelling, Samaras indicated he would try to renegotiate the terms of the bailout.

  There is growing doubt among Greece's foreign lenders that the country - threatened by deepening social turmoil – is willing to and capable of seeing through a second round of punishing austerity since 2010.   

   

    LEAVE EURO ZONE?

    Greece needs the funds to avoid a disorderly default when 14.5 billion euros in debt repayments fall due on March 20.

    The bailout provides for a bond swap to ease Greece's debt burden by cutting the real value of private-sector investors' bond holdings by some 70 percent. Officials say the terms of the swap will be announced on Wednesday.

    "The next three weeks will be hellish. The list of actions regarding the PSI (Private Sector Involvement) and the memorandum is extremely pressing," government spokesman Pantelis Kapsis said on Monday.

    Underlining the doubts of Greece's euro zone partners, Luxembourg's finance minister, Luc Frieden, said on Monday that a failure by Greece to meet all the conditions laid down for it would lead to its exit from the euro zone. 

    Greece may decide it is better to leave the euro zone than to go through with such severe budget cuts, he told the Atlantic Council in Washington.

    A sharply devalued currency would give it more flexibility.  "It might be something which would allow Greece also to get a new start ... to create an economy that can create jobs. This however is not a scenario that I would prefer," he said.

    The euro zone was better prepared now than a year ago to cope with a Greek default and exit from the euro zone, Frieden said, a view echoed by German Finance Minister Wolfgang Schaeuble speaking to the ZDF public broadcaster. 

    But U.S. rating agency Moody's, citing growing risks from Europe's debt crisis and worries about its ability to make needed reforms, downgraded the ratings of six European countries late on Monday and put Britain, France and Austria on negative outlook.

    Uncertainty about the resources that will be devoted to tackling the crisis and Europe's "increasingly weak macroeconomic prospects" were other factors behind its action, it said. 

Greeks swept rocks and broken glass from the streets of Athens on Monday after a night of violence that gave lawmakers a taste of the challenge they face in implementing a deeply unpopular austerity bill demanded by the country's foreign lenders.

    Firefighters doused the smouldering remains of several buildings, set ablaze by hooded youths during protests against the package of pay, pension and job cuts adopted by parliament on Sunday after 10 hours of debate.

    The bill was the price of a 130 billion euro ($172 billion) EU/IMF bailout to save Greece from a chaotic default next month.

    The government of Prime Minister Lucas Papademos must come up with a further 325 million euros in budget savings to satisfy euro zone finance ministers, scheduled to meet on Wednesday, and political leaders must commit to implementing the measures even after an election pencilled in for April.

    Papademos' government saw 43 deputies rebel in what may be an indication of the difficulties in ensuring politicians stick to the programme, which include a 22 percent cut in the minimum wage -- a package critics say condemns the economy to an ever-deeper downward spiral.

    Police said 150 shops were looted in the capital and 48 buildings set ablaze. Some 100 people - including 68 police - were wounded and 130 detained, a police official said on Monday.

    There was also violence in cities across the country, including Greece's second-largest city Thessaloniki and the islands of Corfu and Crete, said the official, who declined to be named.

    Greeks were shocked at the burnt buildings that included the neo-classical home to the Attikon cinema dating from 1870.

    "We are all very angry with these measures but this is not the way out," said Dimitris Hatzichristos, 30, a public sector worker surveying the debris.

    Altogether 199 of the 300 lawmakers backed the controversial bill. The 43 who rebelled were immediately expelled by their parties, the socialists and conservatives.

    "Night of terror inside and outside the parliament," conservative daily Eleftheros Typos wrote on its front page.

    Asian shares and the euro gained modestly on Monday and MSCI's broadest index of Asia Pacific shares outside Japan  .MIAPJ0000PUS edged up as much as 0.3 percent. 

 "SHORT-TERM SACRIFICES"       

    Papademos, a technocrat brought in to get a grip on the risis, denounced the worst breakdown of order since 2008, when violence gripped Greece for weeks after police shot a15-year-old schoolboy.     

    "Vandalism, violence and destruction have no place in a democratic country and won't be tolerated," he told parliament on Sunday as it prepared to vote.

    But he said that imposing the austerity on a nation that has already endured several years of cuts would be tough.

    "The full, timely and effective implementation of the programme won't be easy. We are fully aware that the economic programme means short-term sacrifices for the Greek people," Papademos said.

    Greece needs the international funds before March 20 to meet debt repayments of 14.5 billion euros, or suffer a chaotic default that could shake the euro zone.

    "It was just as hard for us to say 'Yes' as it was for fellow members of the parliament to say 'No' ... I said 'Yes', because 'No' would be catastrophic," Yannis Magriotis, Deputy Infrastructure Minister (from PASOK), told Mega TV on Monday.

    Overnight, a Reuters photographer saw buildings engulfed in flames and huge plumes of smoke rose in the night sky outside parliament.

    "We are facing destruction. Our country, our home, has become ripe for burning; the centre of Athens is in flames. We cannot allow populism to burn our country down," conservative lawmaker Costis Hatzidakis told parliament.

    The air in Syntagma Square outside parliament was thick with teargas as riot police fought running battles with youths who smashed marble balustrades and hurled stones and petrol bombs.

    Terrified Greeks and tourists fled the rock-strewn streets and the clouds of stinging gas, cramming into hotel lobbies for shelter as lines of riot police struggled to contain the mayhem.

    On the streets of Athens many businesses were ablaze, including a building housing the Asty, an underground cinema used by the Gestapo as a torture chamber during World War Two.

    ENOUGH

    The EU and IMF say they have had enough of broken promises and that the funds will be released only with the clear commitment of Greek political leaders that they will implement the reforms whoever wins the April election.

    The bill sets out 3.3 billion euros ($4.35 billion) of extra budget cuts for this year alone.

    It also provides for a bond swap to ease Greece's debt burden by cutting the real value of private-sector investors' bond holdings by some 70 percent. Greece would have missed a Feb. 17 deadline to offer a debt "haircut" to private bondholders if the vote had not been passed.

    Many Greeks believe their living standards are collapsing already and the new measures will deepen their misery.

    "Enough is enough!" said 89-year-old Manolis Glezos, one of Greece's most famous leftists. "They have no idea what an uprising by the Greek people means. And the Greek people, regardless of ideology, have risen."