Canada says expects Greek aid package to grow

Canada said on Sunday it expected a 45 billion euro ($60.49 billion) rescue package for Greece to grow in size as doubts emerged over whether the joint EU-IMF aid would be enough to avert a default.

Saddled with huge debt and a swollen deficit, Greece bowed to intense pressure from financial markets on Friday and formally requested aid, triggering what would be the first bailout of a member of the 11-year-old single currency bloc.

Athens has already announced billions of euros in budget cuts, including tax hikes and reductions in public sector wages, but is now in talks with the European Union and IMF on additional steps to get the aid flowing.

IMF Managing Director Dominique Strauss-Kahn issued a statement on Sunday saying those talks had accelerated and expressing confidence in Greece's determination to get its economy back on track.

But Canada's Finance Minister Jim Flaherty said the package would end up being more than had been said previously, declining to specify the amounts being discussed.

German Finance Minister Wolfgang Schaeuble warned Greece that a tough restructuring of its economy was unavoidable and an absolute prerequisite if Berlin and the EU were to approve the aid Greece has requested.

Schaeuble's French counterpart Christine Lagarde promised to hold Greece accountable for unsuitable economic policies that pushed its 2009 budget deficit to 13.6 percent of gross domestic product (GDP) and its debt to 115 percent of economic output.

She described the aid package as a cocktail of indulgence and great strictness, telling the Journal du Dimanche weekly that Greece's partners would closely monitor its progress and put their foot on the brake if Athens reneged on commitments.

Germany and France, the biggest economies in the 16-nation euro zone, are due to provide about half of the 30 billion euros in aid the EU has tentatively pledged for Greece, with the IMF expected to put up the remaining 15 billion.

DOUBTS ON AID PACKAGE

Only days after Greece requested the aid, doubts were already emerging over whether the package was large enough to calm market fears of a debt default.

Those fears have pushed the yield on Greek 10-year bonds above 8.7 percent, a whopping 567 basis points over the rates on benchmark German Bunds.

This has made it prohibitively expensive for Athens to service its mountain of debt. Greece's formal request for aid on Friday did little to ease market pressures.

Ben May, European economist at Capital Economics, said the aid package was no panacea given growing doubts about Greece's ability to cut its debt to a sustainable level.

By formally asking for financial assistance from Europe and the IMF, Greece has reduced the chances of a damaging near-term financing crisis, but considerable uncertainties remain, he said.

One big risk to Greece's economic plans is public opposition to further austerity steps. Greek riot police fired teargas at protesters who held an impromptu march through central Athens on Friday to protest against more budget cuts.

A poll released on Saturday showed that roughly two-thirds of Greeks believe Prime Minister George Papandreou's socialist government was either too slow to react or handled the economy poorly as the country's fiscal crisis deepened.

Center-left newspaper Eleftherotypia said the specter of Hungary was haunting Papandreou's government. Voters in Hungary booted out the socialist government this month after it tried to push through painful IMF-ordered budget cuts.

(Additional reporting by Sophie Hardach in Paris, George Georgiopolous in Athens, Tracy Rucinski in Madrid; Writing by Noah Barkin; Editing by Ralph Boulton)