Greece debates extending austerity

The Greek finance minister launched his pitch for public acceptance of more austerity measures on Friday, a day after submitting a new plan for spending cuts and tax hikes for a vote in Parliament.

"We have a choice between a difficult path and a path of destruction," George Papaconstantinou said, suggesting the new round of painful measures proposed over the next five years is essential to keeping the country afloat and eventually pulling it out of its severe debt crisis.

Without it, the finance minister said, Greece would default on its debts.

As he spoke, anti-austerity protests continued in the streets of Athens. Frustrated Greeks have taken over the capital's central Syntagma Square, setting up a tent city in a sit-in. Tens of thousands of people thronged the square, which lies in front of Parliament, last Sunday.

Greece's woes have also brought Europe's biggest financial powers to a standoff over how to haul the country out of its debt ditch, with the European Central Bank publicly opposing Germany's demand to make Greece's private creditors share the burden.

The standoff pits the region's top monetary authority against its economic powerhouse and bankroller. The impasse has unnerved financial markets as each side seems to have dug into positions that will be difficult to reconcile.

Someone will have to back down by the end of the month, when officials will need to agree on more aid for Greece to keep it afloat.

Germany's parliament on Friday backed demands from Finance Minister Wolfgang Schaeuble that Greece get more rescue loans only if investors agree to be repaid seven years late on their Greek bonds. That would give the country more time to get a handle on its $480-billion Cdndebt.

Euro falls

The standoff weighed on the euro, which was down 1.2 per cent, trading at $1.4339 US late Fridayafternoon.

The new Greek austerity program proposes to cut spending and hike taxes between now and the end of 2015 two years beyond the current government's mandate.

It also includes a drive to privatize government services in order to raise $70 billion Cdn over the same period.

Greece has been slipping on reform targets required by its rescue package from the International Monetary Fund and the European Union, which have threatened to cut the $161-billion Cdn lifeline.

The new measures which are due for a parliamentary vote later this monthare designed to put it back on track.

Papaconstantinou noted the new austerity plan, which will run to 2015, must be passed in Parliament for the country to receive the next $17-billion instalment of its bailout in July.

Even that may not be enough to guarantee Greece gets all its bailout funds next month.

The IMF will not give its part of the loan instalment unless a solution is found to the country's funding gap next year. The initial agreementwas based on theexpectation thatGreece would be able to return to borrowing on the international bond market in 2012, but that will be almost certainly impossible because of continued high interest rates.

"For the disbursement of the next tranche [instalment] it will be difficult for the markets to open in 2012, so other forms of funding must be found," Papaconstantinou said.

European countries have been discussing how to resolve the issue, possibly with a second bailout. Eurozone finance ministers meeting in Brussels on June 20 and EU leaders gathering on June 23-24 are to discuss the issue as well.