Greek banks plead for more aid in debt crisis

Greek banks, hit by a series of credit rating downgrades linked to the country's debt crisis, have asked the government for more financial support, Finance Minister George Papaconstantinou said on Wednesday.

The banks have asked to use the remaining funds of the support plan, he told reporters, referring to a package first agreed by the previous conservative government in 2008.

About 17 billion euros ($22.72 billion), mainly in state guarantees, remain in the 28 billion euro support scheme, launched to help Greek lenders cope with the global credit crisis.

The Central Bank of Greece said non-performing loans in the banking system rose further in the last quarter of 2009, bringing the full-year ratio to 7.7 percent.

The banks' plea for extra help highlighted the problems facing the entire Greek economy, which is expected to contract by at least 2 percent this year, partly as a result of austerity measures imposed to slash a huge budget deficit.

IMF officials began talks in Athens on Wednesday on implementing the austerity plan, just as the latest market jitters over Greece's ability to manage its debt mountain eased slightly, despite uncertainty over a euro zone rescue plan.

Greek borrowing costs hit a euro lifetime high on Tuesday, fueled by investors' skepticism of an EU-IMF financial safety net agreed last month, and by media reports of apparently contradictory comments by anonymous finance officials.

Unfortunately, too many unqualified people are speaking, talking off the top of their heads, Papaconstantinou told late-night television after having to deny a report that Greece was seeking to renegotiate the rescue plan.

Speaking after the risk premium on Greek bonds over 10-year German bunds hit a record 409 basis points, he said Greece could not go on borrowing at current rates for a long time but had no intention of using the EU-IMF emergency funding mechanism.

COMFORTABLE POSITION?

Newspapers criticized the government on Wednesday for leaks and contradictory statements they said had made it easier for speculators to take advantage of the country's financial plight and push spreads higher in thin post-Easter trading.

Endless torture with the spreads, the center-left Ethnos newspaper splashed across its front page. The government's economic team suffers from a lack of coordination and a surplus of chatter, the newspaper said in an editorial.

Experts from the International Monetary Fund began a two-week mission to give advice on implementing public spending cuts and revenue increases designed to cut the budget deficit by four percentage points to 8.7 percent of gross domestic product.

The mission, which is not expected to discuss loans, comes ahead of the next joint assessment of Greece's progress by the European Commission, the European Central Bank and the IMF due later this month.

The government says the austerity measures are on track and the deficit reduction is ahead of schedule.

But economists say the task of fiscal adjustment will be made still harder by a deeper-than-forecast recession and higher-than-budgeted borrowing costs.

The main public sector union said it would call the latest in a series of 24-hour nationwide protest strikes some time between April 20 and 30.

Greek yield spreads fell on Wednesday, led by the short end of the curve which was hit hardest in Tuesday's selloff. The spread on 10-year Greek government paper over German Bunds tightened to 386 basis points.

Greece is in the comfortable position of not having to visit the markets any time soon, except for its scheduled T-bill issuance this month, a government official said.

Having borrowed for April, it can allow its economic program to run its course, the official said.

Athens needs to tap markets for about 11 billion euros in May, including 8.5 billion euros of a 10-year, 6.0 percent bond maturing May 19.

Among the factors fuelling market jitters are continuing uncertainty about when and how the rescue mechanism would come into play, what the IMF's role would be and what interest rate Greece would have to pay on any emergency loans.

The Financial Times reported on Monday that Germany was insisting that lending should be at close to recent market rates of 6.0-6.5 percent to avoid moral hazard, while other euro zone governments argued Greece should pay the 4.0-4.5 percent that Ireland and Portugal have to pay in the market.

The higher rate would compound Athens' deficit woes.

A euro zone source familiar with the discussions confirmed that differences remained on the appropriate level of interest on any emergency loans to avoid moral hazard.

By charging rates that are too low, you could be understood to be encouraging such behavior, the source said.

A German government spokesman told a news conference in Berlin that Germany had done everything possible to restore confidence in Greece and there would be no change in the plan for assistance as a last resort. The European Commission said it too was not aware of any change in the plan.

(Additional reporting by Mike Winfrey and Ingrid Melander in Athens, Sarah Marsh and Paul Carrel in Berlin and David Lawder in Mumbai; writing by Paul Taylor; editing by Mike Peacock)