Greek PM does not rule out legal action against US banks

(AFP) – ATHENS — Greek Prime Minister George Papandreou raised the possibility of taking legal action against US banks which he said in an interview on Sunday bore "great responsibility" for Greece's debt crisis.

Asked in an interview with CNN whether Greece was the victim of investment banks, he said: "I think, yes the financial sector, I hear the words fraud, lack of transparency, so yes there is great responsibility here."

When the interviewer followed up by asking whether legal action were a possibility, he responded "I wouldn't rule out that this may be a recourse," according to extracts of the interview aired on Greek public television.

The Greek parliament is currently looking into deals Greek authorities carried out in 2000 with help from Goldman Sachs that allowed them to mask the extent of Greece's debts through the use of complex financial instruments.

"Right now there is a parliament investigation in Greece, we are looking into the past how things went in the wrong direction and what kind of practices were negative practices," Papandreou said.

German Chancellor Angela Merkel has led criticism in Europe against banks' role in the debt crisis, slamming "treacherous" practices during the Greek drama and urging governments to crack down on speculators hunting profits in the turmoil.

Greece is paying a painful price for its past overspending with the government forced to slash civil servants' and pensioners' pay while raising taxes as a condition for a 110 billion euro EU-IMF bailout.

However, a poll published Sunday in the Ethnos newspaper found that 58.8 percent of the 1,028 people surveyed expected the country to steer clear of bankruptcy while 36.6 percent considered default inevitable.

While 56.2 percent of those polled by the Marc SA institute considered the austerity measures to be "necessary", 87.8 percent judged them to be "unfair".

Germany to contribute €123bn to eurozone rescue package

Germany is bracing itself for a wave of austerity measures after the country's cabinet agreed for it to put €123 billion ($155 billion) towards the eurozone rescue package agreed earlier this month.

The figure has the potential to rise to a total of €150 billion if more funding is required.

To pay for the scheme, tax cuts promised by Angela Merkel's Christian Democratic Union party last year have been scrapped and decisions are now being made on how to raise additional capital for the state.

Friedrich Heinmann, a spokesman from the Center for European Economic Research, told the Guardian difficult decisions will have to be taken.

"If the government increased VAT on items that currently enjoy a reduced rate, such as hotels, theatres, books and newspapers, it would glean €8 billion; otherwise it will be forced to raise the current VAT rate [of 19.5 per cent]," he said.

The 16 members of the eurozone bloc have agreed to put up €440 billion between them, with the financial rescue package also including a €250 billion contribution from the International Monetary Fund and €60 billion from the European Commission.

German parliament passes Greek bailout package

Germany's lower parliament has voted through plans for the country to contribute €22.4 billion ($28.5 billion) to the bailout of Greece.

Despite widespread public and media opposition to the size of Germany's loan, the bill was passed by a large majority, with 390 votes in favour and 72 against.

There were 139 abstentions, reports BBC News.

The plans will now be passed to the upper house for that section of parliament to vote on the proposals.

If the legislation is approved, the funding pledge will be signed into law.

France has agreed to provide up to €16.8 billion, while Italy is to initially put forward €5.6 billion of its promised total of €14.8 billion.

Last week, Dominique Strauss-Kahn, head of the International Monetary Fund, said that the crisis in Greece has to be solved.

"If we don't fix it in Greece, it may have a lot of consequences on the European Union," he stated.

Greece agrees to €110bn austerity package

Greece has agreed a package of bail-out measures worth €110 billion ($1 from the International Monetary Fund (IMF) and the European Central Bank (ECB).

The rescue fund, which will be donated to the ailing state over the course of the next three years, will receive €80 billion from the ECB with the IMF providing the rest of the money.

Before the terms of the bail-out were agreed, George Papandreou, Greek prime minister, said that the state needed to reach an agreement with the two bodies over a bail-out package to rescue the beleaguered state.

The politician was quoted by Reuters as saying: “Today the top priority is the survival of the nation. This is the red line.”

He added: “The economic measures we must take ... are necessary for our country's protection, for our future, for us to be able to stand on our feet."

Earlier in the month, Moody's Investors Service downgraded the government’s debt after its deficit was found to be more than originally anticipated.

The figure of €32.34 billion ($42.81 billion) is equivalent to 13.6 per cent of gross domestic product and more than the previously-reported figure of 12.7 per cent.

Greece's debt rating is cut to junk; financial woes spread to Portugal

Standard & Poor's cut the credit ratings of Greece and Portugal, spooking investors and sparking a market sell-off worldwide. The downgrades also dashed the hopes of European officials who thought they could contain the credit crisis. Investors were concerned about Greece's position before the downgrades because there was indication that the EU and International Monetary Fund's aid package for Greece might be delayed by Germany.

http://online.wsj.com/article/SB40001424052748704471204575209881629094458.html

Greece - loans from Euro zone

Coca-Cola HBC Is Biggest Greek Company as Banks Fall

(Bloomberg) -- Coca-Cola Hellenic Bottling Co., the world’s second-largest bottler of Coke beverages, has surpassed National Bank of Greece SA to become the nation’s biggest company by market value after the Greek debt crisis caused banking stocks to plunge.

Coca-Cola Hellenic, which is 24 percent owned by the Coca- Cola Co., has a value of more than 7 billion euros ($9.3 billion), the only such company on the Athens exchange, after National Bank plunged 44 percent this year on concern over the country’s debt. Shares in the bottler fell 1.1 percent to 19.50 euros today, for a value of 7.1 billion euros.

National Bank, the country’s oldest and biggest bank, rebounded today for the first time since April 15 after the country’s securities regulator banned short selling on the bourse for two months. The lender gained 2 percent to 10.20 euros, valuing the business at 6.2 billion euros.

Goldman Sachs analyst: Greece may need $198bn bailout

An analyst at Goldman Sachs has forecast that Greece may require a total of €150 billion ($198 billion) in bailout funding for its economy to remain operational.

Earlier this month, a provisional deal was agreed between the country, the International Monetary Fund (IMF) and other eurozone member states to provide Greece with €45 billion.

But Erik Nielsen, chief European economist for Goldman Sachs, has warned this figure is nowhere near high enough to tackle Greece's economic woes, reports the Guardian.

"On my numbers, a one-year fully funded program needs to provide a minimum €50-55 billion, an 18-month program will require some €75 billion, and a three-year program a minimum €150 billion," he said in a note to investors.

"I think the latter number is out of reach even for the present political environment of generosity, so the debate is between €55 billion and €75 billion."

Mr Nielsen added that he believes that representatives from the IMF and the eurozone will already be debating how they will share the burden of delivering more financial aid.

He said he does not think it likely the eurozone countries will be able to come up with much more cash than the €30 billion they have already pledged to hand over to Greece.

Mr Nielsen went on to speculate that the IMF may be able to put together an additional funding program based on either providing €55 billion over the course of a year or €80 billion across an 18-month period.

Earlier this week, German finance minister Wolfgang Schauble warned that it is not yet certain the eurozone will provide the initial €30 billion of funding Greece is expecting.

He said that the provision of aid is dependent on Greece coming up with a detailed plan on how it intends to cut its budget deficit in the next few years.

Greek Stocks Regulator Bans Short-Selling From Today to June 28

(Bloomberg) -- Greece’s securities regulator banned short-selling on the Athens stock exchange from today until June 28, according to an e-mailed statement from the Hellenic Capital Markets Commission today.

Papaconstantinou Tells Investors Don’t Attack Greece

(Bloomberg) -- Greek Finance Minister George Papaconstantinou told investors they will “lose their shirts” if they bet cash-strapped Greece will default, as his government moved toward securing emergency aid before debt payments come due in mid-May.

Speaking to reporters in Washington, where he’s negotiating terms for a three-year loan package with the International Monetary Fund and European governments, Papaconstantinou expressed confidence the talks will be “concluded rather soon” and said his country wouldn’t restructure its debt.

With 8.5 billion euros of Greece’s bonds maturing May 19, finance chiefs want a swift agreement amid concern any delay may trigger a further sell-off in its assets and hurt global markets. Debt totaling 115.1 percent of gross domestic product and a budget deficit of almost 14 percent have investors doubting Greece can fund itself, forcing it last week to seek a lifeline of as much as 45 billion euros ($60 billion) this year.

“The IMF, the European partners and everyone involved in the financing effort recognizes the need for speed,” IMF Managing Director Dominique Strauss-Kahn said in a statement today. “I am confident that we will conclude discussions in time to meet Greece’s needs.”

Axel Weber: Greece may need €80bn to survive

Greece may need as much as €80 billion ($111 billion) in financial aid if it is to avoid defaulting on its debts, a member of the governing council at the European Central Bank has claimed.

Axel Weber

Axel Weber made the comments to a meeting of German politicians, an unknown source close to the matter has told the Wall Street Journal.

According to the person, Mr Weber said “that the numbers are changing all the time” and the situation surrounding the state’s ailing finances is becoming worse.

The Bundesbank has yet to issue a statement on the comments.

Representatives from the International Monetary Fund (IMF) and ministers within the eurozone have estimated that a collective total of €45 billion worth of funding can be donated to the struggling state.

The Wall Street Journal suggested that, if Mr Weber’s comments are true, then the package of financial aid introduced to help Greece may have to be implemented in a series of stages over the next year.

Talks between the IMF and EU representatives are expected to start on Wednesday (April 20th).

Greek rescue talks postponed by volcano ash cloud disruption

Scheduled talks designed to iron out the fine details of a potential €45 billion ($60.79 billion) rescue package for Greece have been put back after the volcano ash cloud, which has led to many flights across Europe being grounded, meant negotiations could not go ahead.

Officials from the International Monetary Fund (IMF), the European Central Bank and the European Commission had been due to meet staff from the country's finance ministry.

While Greece has not yet asked to take on the loans, prime minister George Papandreou said the country was willing to accept the money "without hesitation" if it is deemed necessary.

But the borrowing plans have been criticized by investor George Soros, who said that Germany should not be insisting upon a five per cent interest rate on the rescue package, reports the Times.

Mr Soros said if Greece takes on the loan it will have to cut its spending by even more than it has already.

"Then it becomes a vicious cycle," he warned. "I would call it a death circle. That's really the danger."

Greece needs to find €10.5 billion by the end of May as part of a debt refinancing agreement.

Soros: Greece Still Faces the Danger of a “Death Spiral”

(Bloomberg) -- Greece still faces the danger of a “death spiral” because the cost of borrowing in the euro region’s rescue package is too expensive, billionaire investor George Soros said.

“While it’s better than what the market is currently willing to offer, it’s still rather high,” Soros said at an event in London late yesterday organized by the Economist magazine. “It is a question of solvency. If you start charging very high rates as the market does in anticipation of solvency then that pushes you into insolvency.”

Euro region finance ministers on April 11 offered Greece a 30 billion-euro ($41 billion) aid package which would give it three-year loans at 5 percent if it can’t raise money in capital markets. Greece auctioned Treasury bills yesterday for the first time since the rescue bid, drawing more demand than at a previous sale.

“Concessional rates” of borrowing aid would help Greece “fulfill their target,” Soros said. “If they don’t, they have then to tighten even further, then your tax receipts go down and the economy goes further into tanking and then you go into a death spiral. That is the danger that is still remaining.”

Greek bonds fell for a second day today, pushing the yield on the country’s 2-year debt up 57 basis points to 6.9 percent as of 3:28 p.m. London time.

The extra yield investors demand to hold the country’s 2- year notes instead of German notes of equivalent maturity, rose 55 basis points to 568 basis points, according to generic Bloomberg prices.

“The argument for political will to bail out Greece” was that “the consequences of Greece leaving the euro would be the disintegration of the euro,” Soros said. “The disintegration of the euro would take a very long way toward the disintegration of the European Union.

Soros Fund Management LLC manages about $25 billion. Soros said yesterday that “I’m no longer running the fund.”

Greece Offered 30 Billion Euros of Euro-Area Loans

(Bloomberg) -- The 16 nations sharing the euro agreed to offer Greece a standby facility consisting of 30 billion euros of bilateral loans, Luxembourg Prime Minister Jean-Claude Juncker, who chairs the panel of euro-area finance ministers, tols reporters in Brussels today.

The interest due on the loans won’t contain any elements of subsidizing, Juncker said.

Greek banks seek government support as investors flee

The four largest banks in Greece have asked for government support as investors continue to move their funds out of the financially-troubled country.

George Papaconstantinou, Greece's finance minister, has announced that the banks "have asked for access to the remaining funds of the support plan", reports the Financial Times.

The €28 billion ($37 billion) support plan was originally drawn up in 2008 at the height of the credit crunch.

National Bank of Greece, EFG Eurobank, Piraeus Bank and Alpha Bank have now requested around €17 billion in loan guarantees and special bonds.

According to figures from Greece's central bank, local citizens moved around €10 billion worth of savings out of the country in the opening two months of the year.

The amount represents more than four per cent of the total sum of money in the country's banking system.

In February, Fitch Ratings downgraded the credit ratings of all four banks in response to growing international concern about the state of the country's economy.

Germany, France Back IMF Greek Role

(Bloomberg) -- Germany and France, paving the way for a European Union plan to aid Greece, agreed to involve the International Monetary Fund in any potential EU package for the debt-burdened nation, a German Finance Ministry official said.

The shift toward an IMF role before the start of an EU summit tomorrow came a week after finance ministers agreed to a European framework. German Chancellor Angela Merkel, who says her taxpayers shouldn’t pay for the region’s biggest budget deficit, then pushed for IMF involvement. The reversal put her at odds with French President Nicolas Sarkozy, who backed an EU solution. The euro fell to a 10-month low against the dollar.

“It seems like a U-turn but it’s a sensible solution,” said Julian Callow, chief European Economist for Barclays Capital in London. “The IMF brings credibility and transparency and anything that gives investors a degree of comfort is good. The situation has been from the outset that there is no European mechanism in place to deal with a situation like this. This is what the IMF is there for.”

Franck Louvrier, a spokesman for Sarkozy, wasn’t available to comment and didn’t respond to e-mails.

With allies dropping their resistance to IMF involvement, Merkel agreed to sign on to a statement at the Brussels summit March 25-26 to create a mechanism to aid indebted members, including Greece, Die Welt reported yesterday. A government spokesperson denied that Merkel had agreed to an EU plan.

Euro Weakens

The euro dropped to a 10-month low against the dollar and declined to a record against the Swiss franc as news of an IMF role was seen as undermining the credibility of the single currency. The euro slipped as much as 1.1 percent to $1.33354, the lowest since May 2009.

Renewed concern that Greece’s financing woes could spread also hurt the currency. Fitch Ratings cut Portugal’s credit grade today one step to AA-, calling a budget deficit that swelled to 9.3 percent of GDP last year, three times the EU limit, a “sizeable fiscal shock.”

Greek bonds declined after the Fitch announcement, paring gains on news of a possible aid agreement. The yield on the country’s benchmark 10-year note rose 1 basis point to 6.35 percent, after falling to 6.19 percent earlier.

The need to bring in the IMF was a failure for Europe, and Greece would likely eventually default even with aid, UBS Investment Bank deputy head of global economics Paul Donovan told Bloomberg Radio.

Europe ‘Failed’

“The problem that we’ve got here is Europe has failed to clear its first serious hurdle,” he said. “If Europe can’t solve a small problem like this, how on earth is it going to solve the larger problem, which is the euro doesn’t work. It’s a bad idea.”

Greek Prime Minister George Papandreou has been urging EU allies to give details of an aid package to shore up investor confidence and bring down borrowing costs. Greece’s 10-year bonds now yield twice comparable German debt. That financing premium led Papandreou to say on March 19 that Greece, which needs to sell about 10 billion euros ($14 billion) of bonds in coming weeks, is a step away from not being able to borrow and may need to turn to the IMF if European aid isn’t forthcoming.

Merkel set three conditions for supporting EU assistance, another German official said yesterday on condition of anonymity. Aid would be made available only if Greece couldn’t raise funds in financial markets, the IMF makes a substantial contribution and EU sanctions against deficit-limit violators are stiffened.

‘This Mess’

“The euro area’s ability to impose the rules that it already has have been inadequate,” David Mackie, chief European economist at JPMorgan Chase & Co said. “In some sense you have to bring someone in who does a better job of it. The existing rule book has failed otherwise we wouldn’t be in this mess.”

Some European officials have resisted calling in the IMF, saying it undermines the credibility of monetary union and the single currency. European Central Bank Executive Board member Lorenzo Bini Smaghi said in an interview with Germany’s Die Zeit newspaper that IMF involvement would be “detrimental to the stability” of the euro.

“The image of the euro would be that of a currency that is able to survive only with the external support of an international organization where the Europeans are not in a majority and the U.S. and the Asians are increasingly influential,” Bini Smaghi is quoted as saying.

Van Rompuy’s Role

The agreement on the IMF role came as EU President Herman Van Rompuy pushed to bridge the differences an aid to Greece and after Sarkozy called for a meeting of euro-region leaders before the Brussels gathering to take up the issue.

Van Rompuy pursued a similar strategy last month, when he delayed the start of the Feb. 11 summit to broker an accord in principle “to take determined and coordinated action” to safeguard the euro area.

Greek Finance Minister George Papaconstantinou said that he expected “positive” results from the summit and preferred a European solution for any potential aid. “We want to borrow with better rates and believe this will happen with the implementation of the deficit plan,” he said at a conference in Athens yesterday.

Greece is banking on wage cuts and tax increases to shave the deficit to 8.7 percent of gross domestic product this year from 12.7 percent in 2009, the highest in the euro’s 11-year history. Papaconstantinou said that target is reachable even if the economy shrinks as much as 2 percent this year.

Goldman’s Greek Swap Spurs ECB to Seek New EU Deficit Rules

(Bloomberg) -- The European Central Bank may try to get European Union rules amended so that countries can’t use swaps to cut excessive budget deficits, capitalizing on a debate sparked by Goldman Sachs Group Inc.’s swap arrangements with Greece.

European politicians have criticized Goldman Sachs after the Greek fiscal crisis turned attention to a currency swap the firm arranged in 2002 that helped Greece hide the extent of its budget deficit and overall debt level. The ECB document, dated March 3 and marked “restricted,” suggests the central bank should use the issue to push for tighter fiscal controls on euro-area nations that breach EU rules.

“Considering the recent upheaval in relation to these swaps, the opportunity should be seized” to amend the calculation of excessive deficits, the document says. “Such a change would increase the transparency and methodological soundness of government deficit figures, without compromising governments’ ability to actively manage their debt through a sound economic use of swaps.”

A Goldman spokeswoman didn’t return a phone call seeking comment yesterday. European Commission spokesman Amadeu Altafaj didn’t return a phone call seeking comment.

The Goldman Swap

In the document, the six-member Executive Board, headed by ECB President Jean-Claude Trichet, invites the Governing Council to mandate it to discuss the proposal with the European Commission. The Governing Council consists of the Executive Board and the heads of the euro area’s 16 member central banks, and is the ECB’s main policy-making forum.

Greece in 2002 entered a cross-currency swap agreement with Goldman Sachs on about $10 billion of debt issued in dollars and yen. That was swapped into euros using a historical exchange rate, a mechanism that generated about $1 billion in an up-front payment from Goldman to Greece. Goldman has said it did nothing wrong.

‘Unusual Terms’

National Bank of Greece SA, the country’s biggest lender, in August 2005 bought the rights to reimbursements owed by the Greek government from Goldman for 5.1 billion euros ($6.9 billion), according to the ECB document. In December 2008, the government and the National Bank of Greece agreed on a new swap and securitization, it says.

“It can be shown that the unusual terms of the swap amount to the Greek government effectively obtaining a 30-year loan of 5.4 billion euros from NBG,” the document says. The operation “appears to be a roll-over of a similar one concluded by the Greek government with Goldman Sachs earlier in the decade” and other off-market swaps.

The ECB identified the operation in April last year, according to the document. It says the asset-backed securities created in the 2009 securitization were retained in full by the National Bank of Greece with a view to pledging them as collateral with the ECB.

“It could be argued that the borrowing needs of the Greek government may be seen as indirectly supported by the Eurosystem’s refinancing operations,” the document says. “In the upcoming review of the eligibility criteria applicable to” asset-backed securities, the ECB “should become more restrictive, in particular with respect to idiosyncratic structures.”

Excessive Deficits

The two-page document is titled “The Use of Derivative Transactions in Deficit Financing and Government Debt Management, The Greek Case.”

When countries’ deficits exceed the EU limit of 3 percent of gross domestic product and they enter the European Commission’s so-called excessive deficit procedure, interest payments linked to swaps are included in the deficit calculation. That can result in a smaller gap. Normally, they are recorded as financial transactions and don’t affect a government’s net lending and borrowing, according to European Union statistics office Eurostat.

Luxembourg, Cyprus and Finland are the only euro-region nations not in the excessive deficit procedure at present.

‘Scandal’

Fifteen of the 16 euro members have made money on swaps used to manage their debts, Eurostat data from 2000 through 2008 shows.

Greece made a net 1.67 billion euros on swaps between 2000 and 2008. Italy, whose deficit exceeded the region’s limit five times in the last decade, earned 8.1 billion euros from interest-rate and currency swaps from 1998 through 2008.

European politicians argue that the Goldman swap arrangement helped Greece hide the scale of its fiscal woes. German Chancellor Angela Merkel said on Feb. 18 it would be a “scandal” if banks helped Greece massage its budget deficit, which ballooned to 12.7 percent of GDP last year.

Gerald Corrigan, the chairman of Goldman’s regulated bank subsidiary, told the U.K. Parliament’s Treasury Committee on Feb. 22 that his company did “nothing inappropriate” when it arranged currency swaps for Greece. Nevertheless, he conceded that the arrangement could have been more open.

“With the benefit of hindsight, it seems to be very clear that the standards of transparency could have, and probably should have been, higher,” he said.

Greece asks Obama to impose tougher rules on hedge funds

Greek prime minister George Papandreou has called on US president Barack Obama to introduce tougher regulation on currency traders and hedge funds.

George Papandreou

The European country is currently in the midst of a financial crisis which has seen three packages of cuts passed in the past three months by the government.

Last week, further debt-cutting measures were introduced including pay cuts for citizens working in the public sector, as well as tax rises on goods such as fuel.

Mr Papandreou has stated that hedge funds are making the economic situation worse in Greece by betting on the country defaulting on its debts.

"Europe and America must say 'enough is enough' to those speculators who only place value on immediate returns, with utter disregard for the consequences on the larger economic system," he stated.

Last month, Fitch Ratings downgraded the credit rating of four top Greek banks in response to the growing crisis.

EU, Merkel Urge Swap Regulation as Greece Takes Plea to U.S.

(Bloomberg) -- The European Union’s top regulatory official said the bloc will consider banning “purely speculative” credit-default swaps as German Chancellor Angela Merkel called for a crackdown on derivatives trading to prevent a rerun of the Greek financial crisis.

European Commission President Jose Barroso said today the 27-nation region will “examine closely the relevance of banning purely speculative naked sales on credit-default swaps.” Merkel, speaking before Greek Prime Minister George Papandreou meets President Barack Obama in Washington today, said the EU must take the lead in curbing derivatives.

“We’re of the opinion that a quick implementation of actions in the area of CDS has to happen,” Merkel told reporters in Luxembourg. Citing “ongoing speculation against euro-region countries,” she called for the “fastest possible” implementation of new rules.

European leaders are ratcheting up the pressure for global regulation of derivatives amid the Greek fiscal crisis. The commission, the EU’s executive arm, will also propose creating a lender of last resort to aid cash-strapped members such as Greece, a proposal that has divided the region’s leaders.

Papandreou said in a speech in Washington yesterday that “unprincipled speculators” threatened a new global financial crisis and said he’d press Obama to support EU efforts to target speculation.

‘Enough Is Enough’

“Europe and America must say ‘enough is enough’ to those speculators who only place value on immediate returns, with utter disregard for the consequences on the larger economic system,” Papandreou said.

Germany’s BaFin financial regulator said market data doesn’t back up claims that swaps were used to speculate against Greek bonds. Data provided by the U.S. Depository Trust & Clearing Corporation didn’t show that new open positions were built up and also didn’t indicate “massive speculative action,” BaFin said in a statement yesterday.

Blaming derivatives for Greece’s debt crisis “confuses cause and effect,” and a ban could lead to “mispricing of financial risks,” said Tim Brunne, a credit strategist at UniCredit SpA in Munich.

The cost of swaps on Greek bonds surged to a record on concern the government will struggle to repay more than 20 billion euros ($27 billion) of debt coming due by the end of May. The risk premium investors demand to buy Greek 10-year bonds over comparable German debt has also surged, causing a jump in the country’s borrowing costs. The spread is currently 305 basis points, more than twice the level at the start of November.

Lacking Transparency

“The CDS market has developed very strongly and drives prices in bond markets,” Bundesbank President Axel Weber, a European Central Bank governing-council member, told reporters today in Frankfurt. “Not everybody who buys protection has an underlying exposure. It’s a very intransparent market, we need to have a much more transparency.”

Papandreou compared investors buying protection on underlying assets they don’t own -- so-called naked swaps -- to someone taking out fire insurance on a neighbor’s house. They then have an incentive to burn it down to collect, he said.

U.K. Finanical Services Authority Chairman Adair Turner told a parliamentary committee last week that CDS, and naked CDS in particular, need to be examined by policy makers.

Speaking in a telephone interview before Barroso made his comments, FSA Spokesman Joseph Eyre referred to Turner’s testimony last week. The FSA didn’t return a call or e-mail seeking comment on Barroso’s speech.

‘No Useful Purpose’

“Naked CDS serve no useful purpose and are dangerous,” Richard Portes, professor of economics at London Business School, said in a telephone interview today. “They do not help significantly price discovery or liquidity. They’re not analogous to short selling equities because they will affect the cost of funding.”

Barroso said that he would press leaders of the Group of 20 nations to curb swaps at a meeting in June. He also said that the creation of a European Monetary Fund to aid struggling EU members would be a long-term proposal that may require changes to EU regulations. Yesterday, Merkel indicated that a proposal to create the lender of last resort could be ready by June.

Merkel, whose finance minister Wolfgang Schaeuble champions the idea of such a fund, said it would work as “a measure of last resort” and only after “a cascade of sanctions” against governments that break euro rules. Amending European treaties would be required, she said.

‘Other Ideas’

French Finance Minister Christine Lagarde said today an EMF may not be the best option. “Other ideas need to be studied and those that respect the Lisbon treaty are much preferable,” she said in Paris. The ECB’s Weber also questioned the fund proposal, saying that there should not be “institutionalizing of emergency aid.”

Greece’s ability to tame the EU’s largest budget gap, at 12.7 percent of gross domestic product, prompted speculation that the country would need a bailout and could be forced to abandoned the single currency. The euro has declined 5 percent this year as Greece’s financial woes undermined raised questions about the strength of monetary union.

Papandreou’s government last week outlined measures to save 4.8 billion euros ($6.5 billion), including higher fuel, tobacco and sales taxes, as it seeks to lop 4 percentage points off the budget deficit. It was the third package of measures this year and the government said it would guarantee that Greece would make good on a pledge to trim the shortfall to 8.7 percent in 2010.

Greece is “on track” to achieve its deficit-cutting goals following the passage of extra austerity measures, EU Economic and Monetary Affairs Commissioner Olli Rehn said today in an interview in Strasbourg, France. The new measures put Greece “onto the path of fiscal adjustment for 2012 below 3 percent” of GDP, he said.

Greece urged to sell islands to pay off debt

Greece should consider selling some of its islands to pay off its debt, a pair of German politicians has claimed.

Josef Schlarmann, a member of chancellor Angela Merkel's Christian Democrats party, and Frank Schaeffle, a finance expert, made the comments in an interview with German newspaper Bild.

The former was quoted by Reuters as saying: “Those in insolvency have to sell everything they have to pay their creditors. Greece owns buildings, companies and uninhabited islands, which could all be used for debt redemption."

Bild published the story under the headline "Sell your islands, you bankrupt Greeks! And sell the Acropolis too!".

Opinion polls conducted in Germany show that the majority of the public are not supportive of the country helping fund the bailout of Greece.

The country is currently struggling with its debt after deficit levels reached 12.7 per cent of GDP at the end of 2009, a figure four times higher than the recommended amount.

Meanwhile, the struggling state’s Public Debt Management Agency has launched a ten-year bond issue as part of its deficit reduction strategy.

Greece is aiming to pay off €54 million during 2010.