Fitch downgrades Greece on lack of funding program (Reuters)

NEW YORK (Reuters) – Fitch Ratings on Wednesday downgraded Greece deeper into junk territory, citing the absence of a new and fully funded financing program for the country.

Heightened uncertainty surrounding the role of private creditors in any future funding programs from the European Union and the International Monetary Fund also weighed on the decision, as well as Greece's weakening macroeconomic outlook, Fitch said.

The ratings agency cut Greece's rating to CCC, a rating that implies a substantial risk of default, from B-plus. The new rating was removed from credit watch negative.

A few hours before downgrading Greece, Fitch gave Italy a vote of confidence, saying the country's debt will remain on a sustainable path as long as the government adheres to its "ambitious" fiscal targets.

For Greece, however, austerity measures alone will not be enough.

"New money is required to address Greece's fiscal funding shortfall that would otherwise emerge in 2012," Fitch said in a statement, adding that it expected the EU and the IMF to have decided on the new funds by now.

"While the main parameters of a new multi-annual adjustment program were discussed at an Ecofin meeting on 11-12 July, no further clarity on the volume and the terms of new money or the nature of private sector participation was forthcoming," it said.

Standard & Poor's already downgraded Greece to CCC one month ago, leaving a negative outlook on the rating. Moody's has the country at Caa1, one notch above its competitors.

(Additional reporting by Daniel Bases; Editing by Padraic Cassidy)

(This story is corrected in the last paragraph to fix Moody's rating)

Greece strikes: Your views

28 June 2011 Last updated at 14:25 GMT A 48-hour general strike has begun in Greece as parliament prepares to vote on stringent austerity measures.

Thousands of protesters gathered outside parliament and small groups clashed with police in the centre of Athens.

BBC News website readers in Greece have been sending us their reaction to the latest developments.

Rachel, Paros, GreeceGreece strikes: Your views

"I can understand why the Greeks are angry"

I run a cafe and a small independent supermarket with my husband on the Greek island of Paros. I am very happy here for now but depending on how much worse the situation gets I don't know how much longer we can stay here.

I can understand why the Greeks are angry about the austerity measures but they need to be realistic - someone has to pay these debts.

I certainly don't think that Europe pumping more money into the country will resolve the problems. I think it would be better if Greece left the euro. This is a tourist country and it would do better on a weaker currency like the drachma. This would encourage people to come here and spend money.

These strikes are also terrible for our tourist season. There has been a noticeable drop in the number of tourists visiting the island - I would estimate by about 30%.

It's not that I think strike action is always bad - it's good that people want their voices to be heard but they have been going on for over a year now and they are very disruptive.

We've already had the coldest and wettest spring and Easter in years and now the boats will not be running for two days. Who would come to Greece on holiday?

"People here in Greece are getting desperate"

People here in Greece are getting desperate. They can't afford to pay any more taxes.

I am a student but I can see my parents struggling already as it is. There are simply no more measures that they can take to cut back.

If our government continues to demand more taxes then people won't be able to buy any goods. Many shops have already closed and this will continue to get worse. Unemployment will rise.

My parents are both teachers and they have heard that if this latest loan with the EU is not passed, they will not receive their salaries in July.

I am really worried that the economy of this country will collapse.

I support the strikes and totally agree with them. Most of the demonstrators are peaceful and just want to get their voices heard. There is a small group who try and bring down the protests by being violent but this does not reflect the majority.

I am self-employed so I haven't had to go out to get to work today. The city gets very congested when strike action takes place and obviously public transport is affected.

I'm all for the people being allowed to voice their disagreement but I don't like the violence. Fortunately most of the action is contained in a few square blocks of Athens. If you went to an island you probably wouldn't be aware that this was happening.

Everyone here will suffer because of these austerity measures. There will be cuts and heavy taxation. But I think in the long-run this is a blessing in disguise for the country.

There is no other way that the government can find a way of borrowing money unless these cuts are made. I think these measures are likely to force Greece to restructure its economy. We need to be more competitive and investor-friendly.

This crisis could force Greece into becoming an energy exporter and establish laws reducing red tape and promoting transparency.

Greece in deal with EU/IMF on austerity plan: sources (Reuters)

ATHENS/BRUSSELS (Reuters) – Greece won the consent of international lenders Thursday for a five-year austerity plan intended to avoid looming bankruptcy, sources familiar with the talks said, and its prime minister pledge to push radical economic reforms through parliament.

After a day of wrangling in Athens, new Finance Minister Evangelos Venizelos clinched agreement with EU and IMF inspectors on extra tax rises and spending cuts to plug a 3.8 billion euro funding gap, the sources said.

"We have a deal," one of the sources said as Prime Minister George Papandreou was meeting fellow EU leaders at a Brussels summit dominated by Greece's debt crisis.

There was no immediate official confirmation, but the euro rebounded against the dollar and U.S. stocks pared losses after the Reuters report of the agreement.

European Union leaders insisted that the Greek parliament must enact deep spending cuts, more tax hikes and a major sell-off of state assets to secure desperately needed aid and avoid a potential default in mid-July.

Prime Minister George Papandreou said on arriving at a summit with fellow EU leaders he was committed to pushing the deeply unpopular austerity plan through parliament next week.

"Greece is committed, strongly committed, to continue a very important program for major changes, radical changes, to make our economy viable," he told reporters.

EU leaders also pleaded with conservative Greek opposition leader Antonis Samaras to rally behind the austerity program, but he maintained his refusal to vote for the plan.

Euro zone governments are meanwhile talking to banks and insurance companies to try to convince them voluntarily to maintain their exposure to Greek debt when their bonds mature, as part of a possible second rescue for Athens.

Venizelos, appointed last week, had wanted to change some measures Greece had already agreed with the EU, International Monetary Fund and European Central Bank and present a slightly softer package to parliament for approval on June 28, in an effort to win over an angry and frustrated Greek public.

But the changes meant Athens would have fallen short on its austerity promises, so the gap has been closed by lowering the income tax threshold to 8,000 euros and raise heating oil taxes.

"Our basic aim is to regain our credibility," Venizelos said.

Analysts welcomed the deal. "It helps that Greece is sticking to its austerity plan. Germany, EU and IMF are in active negotiation with Greece which will be stuck to. In general this is good news and it will help," said Perry Piazza, director of investment strategies with Contango Capital Advisors in SanFrancisco.

If the package is approved, the EU and IMF should release a next tranche of emergency loans -- 12 billion euros ($17 bln) -- by mid-July, allowing Athens to escape bankruptcy.

"All conditions must be met," Luxembourg Prime Minister Jean-Claude Juncker told reporters. "If Greece does what it has to do, we will do what we have to do. This is not a threat. It's just a confirmation that we're continuing our efforts."

German Chancellor Angela Merkel, who has taken perhaps the toughest line on Greece, urged the Greek opposition to do what was necessary and get behind the package. "In such a situation, everyone must stand together in a country," she said.

HELP GREECE TO HELP ITSELF

While Papandreou has expressed confidence over the June 28 vote in public, Slovak Prime Minister Iveta Radicova said he had voiced uncertainty in a private telephone call Wednesday.

"Papandreou has serious doubts about whether the necessary steps will pass in parliament," Radicova told the Slovak parliament's European affairs committee.

The Greek crisis dominated debate at the summit, the fourth the EU's 27 leaders have held this year as they grope for a solution to debt woes that have forced Greece, Portugal and Ireland to seek bailouts and roiled global financial markets.

No formal decisions were expected on Greece but the gathering will be monitored intensely by financial markets for any message it sends on whether the EU plan can work. Leaders were expected to agree a statement on Greece during a dinner on Thursday.

But investors are skeptical. Five-year credit default swaps on Greek government debt rose 138 basis points to 2,025 bps, according to data monitor Markit, implying a more than 80 percent probability of default over that period.

U.S. Federal Reserve Chairman Ben Bernanke stressed on Wednesday that much more than the future of Greece was at stake.

"If there were a failure to resolve that situation, it would pose threats to the European financial system, the global financial system, and to European political unity, I would conjecture, as well," he said.

A Greek default would force European banks and governments to take big losses, spread contagion to other stressed euro zone sovereigns and potentially plunge the economy of the world's biggest trading bloc, already slowing, into recession.

GETTING BANKS ON BOARD

Even if Greece manages to persuade the EU and IMF that it is fully committed to making the budget adjustments demanded, it will only buy the government a few months' respite and most economists expect Athens will have to default eventually.

Greece accepted a package of 110 billion euros of EU/IMF loans in May 2010 and now needs a second bailout of a similar size to meet its financial obligations until the end of 2014, when it hopes to return to capital markets for funding.

Euro zone member states, led by Germany, insist any second aid package must involve the private sector. But credit rating agencies have said they would treat even a voluntary debt rollover as a selective default, potentially starting a chain reaction of turmoil in markets.

"We are working on a solution which is based on a voluntary rollover and I expect it will not create a credit event," Rehn said, explaining that part of the aim was to keep discussions on a national level so that voluntary agreement is reached.

At meetings Wednesday, banks and insurers in Germany, France, Spain and Belgium were asked by national financial authorities to roll over their holdings of Greek debt voluntarily when the bonds mature.

A financial source said Franco-Belgian banking group Dexia is prepared to roll over its exposure to Greek debt, the biggest among Belgian banks, adding to the list of banks prepared in principle to take part.

(Additional reporting by Martin Santa in Bratislava, Ben Deighton and Robert-Jan Bartunek in Brussels, Renee Maltezou, George Georgiopoulos, Dan Flynn and Lefteris Papadimas in Athens; Writing by Paul Taylor and Luke Baker, editing by Philippa Fletcher)

No let-up in pressure on Greece despite vote (Reuters)

By Ingrid Melander and George Georgiopoulos Ingrid Melander And George Georgiopoulos – 2 hrs 45 mins ago

ATHENS (Reuters) – Europe kept the pressure on Greece to push forward with a painful austerity program on Wednesday after Athens cleared the first hurdle in avoiding a sovereign default.

European leaders congratulated Prime Minister George Papandreou on surviving a confidence vote but clearly wanted to keep the government's feet to the fire in the more difficult next stage -- implementing reforms rejected by many of the population.

"There is no alternative. We have a plan, now it's time to act on it, it's time to implement it. There is no alternative. There is no Plan B," European Commission spokeswoman Pia Ahrenkilde-Hansen told a news conference.

Chancellor Angela Merkel, leader of EU paymaster Germany, said Greece must more aggressively privatize state-run firms and boost tax revenues. She said the confidence vote was an important step but Greece must now push through the reforms European Central Bank President Jean-Claude Trichet, head of a new financial super-watchdog, said warning lights were flashing red on the euro zone debt crisis. "The message . is that it is the most serious threat to financial stability," he said in Frankfurt.

Worryingly for Brussels and for markets, divisions again emerged among EU policymakers over how to involve private creditors in the next phase of the rescue, with Merkel telling lawmakers there was only limited support for Germany's position that the banks must do their bit.

Any suggestion that governments are forcing banks to help finance the bailout could be viewed by credit rating agencies as a Greek default or restructuring. That could trigger further catastrophic debt downgrades and suck in Europe's other weak economies.

CABINET APPROVES REFORMS

The Greek cabinet on Wednesday approved draft legislation spelling out details of its new five-year austerity plan, which will now be submitted to parliament on Friday. The thousands of demonstrators chanting their anger on Tuesday night during the confidence vote illustrated widespread public opposition and the big challenges still facing the government.

Papandreou aims to get parliamentary approval for the package of spending cuts, tax hikes and state asset sales by June 28, and to implement it by July 3, to secure 12 billion euros ($17 billion) in funding from the European Union and IMF.

Without the aid, Athens will plunge into default next month, sending shock waves through the global financial system.

Urging the cabinet to approve the draft, Papandreou told them: "We are in a continuous, tough negotiation with our partners ... the international environment is tough. It is unstable and often nervous."

But Slovak Prime Minister Iveta Radicova said Greece would struggle to pass the measures by the end of June. "I am afraid that, in the conditions as they are set today, it will be hardly possible to pass in the Greek parliament," she told reporters.

EU leaders meeting in Brussels on Thursday and Friday will discuss the next steps in supporting Greece although Merkel said she expected no concrete decision on more funding until Athens approved the package.

The leaders are expected to make a political commitment to go on funding Athens for the next 12 months to convince the IMF to release the next tranche of loans in early July, once the fiscal package is implemented.

The euro rose on hopes that the immediate threat of market chaos could be avoided. But the gains were short-lived as traders remained worried about politicians' will to implement harsh austerity measures against fierce resistance from the Greek public, and doubtful of Greece's ability to reduce its debt burden without some form of restructuring.

"It's not over," one trader said.

YEARS OF MISERY

A Reuters survey of European economists indicated that fellow euro zone periphery states Portugal, Ireland and Spain as well as Greece all faced years of economic misery from dismal growth and painful unemployment.

The forecast for Greece was for practically no growth next year against an IMF prediction of 1.1 percent.

The government won the late-night confidence motion by 155 to 143 with two abstentions after all of Papandreou's Socialist Party deputies voted solidly with the government, signaling they had been brought into line after earlier dissent.

But despite European and IMF calls for unity behind the reforms, all opposition deputies voted against. More than 20,000 protesters chanted insults outside parliament during the vote.

With unions bristling for a fight and much of the public outraged by new austerity measures as Greece suffers its worst recession for 37 years, implementing any reforms will be tough.

Workers at state-controlled power utility PPC continued a strike for the third day in opposition to a planned sale of part of the company. Various parts of Athens suffered brief power cuts on Wednesday."

"Within the parliament there is no problem at all, the real problem is in society," said Costas Panagopoulos of pollster ALCO. "There's a lot of disappointment in the Greek society, there's a lot of anger and there's no hope at all. The new minister of finance and the government...have to offer some hope otherwise I cannot see how the government could remain stable."

The new mid-term plan envisions raising 50 billion euros by selling off state firms and includes 6.5 billion in 2011 fiscal consolidation, almost doubling existing measures that have helped extend a deep recession into its third year.

Most analysts remain skeptical that Greece will be able to repay its vast public debt pile of 340 billion euros, 1.5 times its annual economic output and more than 30,000 euros for each of its 11.3 million people, even if the reforms are implemented.

Mohamed El-Erian, head of Pimco, the world's biggest bond fund, said he expected Greece to end up defaulting on its debt.

"For the next three years, we're going to see different economies work out different problems. For European economies, especially Greece, it would be through default," he said.

But for now both markets and European policymakers are willing to give Greece the benefit of the doubt.

"Although this clearly is not going to be a long-term fix, investors see this as a chance that the can will be kicked further down the road," said David Dietze, Chief Investment strategist at Point View Financial Services.

New Finance Minister Evangelos Venizelos, in an attempt to answer a key grievance of protesters, told parliament the government's top priority would be to build a fairer tax system.

He is expected to drop plans for an increase in fuel tax and for a special levy on real estate, instead targeting the self-employed -- who are widely believed to be amongst the worst tax evaders -- while lowering the burden on low-paid employees.

Euro zone officials have told Reuters the plan for the new bailout, meant to extend Greece's year-old 110-billion-euro deal and fund it into late 2014, would feature up to 60 billion euros of fresh official loans, 30 billion euros from the private sector and 30 billion euros from privatizations.

(Additional reporting by Renee Maltezou, Lefteris Papadimas in Athens, John O'Donnell in Brussels and Faith Hung in Taipei; Writing by Barry Moody; Editing by Janet McBride)