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Greece in talks on how to limit recession

By Elena Becatoros

Associated Press

Published: Wednesday, Aug. 31 2011 7:20 a.m. MDT

ATHENS, Greece — Greece is discussing with its foreign creditors how to reduce the impact of its deep recession, Finance Minister Evangelos Venizelos said Wednesday, stressing that the next few weeks will be crucial for the country.

Venizelos has said the Greek economy will contract more than originally predicted, possibly by over 4.5 percent this year. The deeper recession is likely to hurt Greece's ability to meet the fiscal targets set out in an austerity program necessary for the country to continue receiving rescue loans from an international bailout.

Speaking during an interview on Real FM radio, Venizelos said Greece was in talks with representatives from the International Monetary Fund, European Commission and European Central Bank, known collectively as the "troika," who are in Athens on a regular inspection visit.

Venizelos, who was to meet with the delegates later Wednesday, said the government would not seek extra time to meet its deficit-cutting targets.

"We are not asking for any extension. We are holding a joint discussion and evaluation of the macroeconomic data, the depth of the recession and the causes that lead to a deeper recession," Venizelos said.

Describing the next four months to the end of the year as "very dynamic," the minister said that just because statisticians predict a deeper recession than originally thought, "it doesn't mean we have to accept that with defeat. We can make efforts to limit the recession."

Venizelos said the troika was "rightly" raising the issues of structural reforms that would open up markets, free up professions to more competition and combat bureaucracy.

The minister also dismissed rumors that the prime minister might call early elections.

"The last thing the country needs at the moment is early elections," Venizelos said.

Greece is being kept afloat by a €110 billion ($158 billion) package of bailout loans from the IMF and other European Union countries that use the euro.

A second bailout of €109 billion was agreed on July 21, but it has run into potential problems after one of the contributing countries, Finland, demanded collateral in return for its participation in the rescue. Another four countries have said that they will also seek the same terms if Finland is granted collateral.

The minister insisted Greece had acted strictly in accordance with the eurogroup — the eurozone's finance ministers — in setting up the Finnish deal. He noted in the past that Helsinki, which saw a nationalist, anti-bailout party win a significant section of the vote in elections earlier this year, was not going to sign up to the bailout without the collateral deal.

He stressed that the discussions involved only cash collateral rather than property.

"We are speaking about guarantees of a financial nature, which do not create a problem in the stability program for the Greek economy," Venizelos said.

His comments came as Prime Minister George Papandreou met with the country's central bank governor, George Provopoulos, two days after Greece's second and third largest banks announced plans to merge so as to better withstand the financial crisis.

The merger of Eurobank and Alpha Bank will create Greece's biggest bank, and will see a €500 million ($720 million) investment from a Qatari investment fund, Paramount Services Holding Ltd.

Describing it as a "very important first step in the restructuring of the banking system," Provopoulos said more such changes could lie ahead.

"This heralds other changes, which will create a very positive picture in the banking sector, which of course has suffered the consequences of the financial crisis," Provopoulos said.

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