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Greek finance chief leaves to head Socialists

By Elena Becatoros

Associated Press

Published: Monday, March 19 2012 9:35 a.m. MDT

A protester peers out the entrance of a seamen's pension fund at the port of Piraeus, near Athens, on Monday,March 19, 2012. Striking seaman halted ferry services to Greek islands for 48 hours, starting Monday, in opposition to planned health and pension fund mergers by the government in the crisis-hit country. Lower sign reads: "Occupation".

Petros Giannakouris, Associated Press

ATHENS, Greece — Greek Finance Minister Evangelos Venizelos will submit his official resignation on Monday after being elected to head the majority Socialist party as the country heads into early general elections.

Venizelos was the only candidate for the leadership of the PASOK party in party's elections on Sunday, and is to formally take over from his predecessor, former Prime Minister George Papandreou, later in the day.

He has been at the heart of months-long negotiations that resulted in a massive second bailout for Greece and a debt writedown deal with private creditors.

"We have the elections ahead of us and I had the opportunity this morning at a farewell meeting at the finance ministry ... to give my final instructions," Venizelos said after meeting with the country's president, Karolos Papoulias, to inform him of the party election results.

The coalition government has not indicated who will be appointed in Venizelos' place. Early general elections are expected in late April or early May, though no firm date has been set.

PASOK won a landslide victory in 2009 general elections, but party defections and public anger over austerity measures prompted it to form an interim coalition government with the rival conservatives last November.

Recent opinion polls have seen its support sink to as low as 11 percent, taking a hit from widespread public anger over repeated austerity measures which have included salary and pension cuts as well as several rounds of tax hikes.

The Bank of Greece predicted the country's will contract by 4.5 percent in 2012 and remain in mild recession next year, while unemployment will surpass 19 percent on average this year.

The gloomy predictions in the central bank's annual report overshadow the coalition government's recent success in negotiating financial rescue deals with both private creditors and emergency lenders from the eurozone and International Monetary Fund.

Greece has taken significant steps to reform the economic system since it signed its first bailout agreement for €110 billion in 2010, the bank said.

However, results were "below expectations," it noted.

"The policy pursued did not convince as a whole that it will succeed, because there was a lack of determination for reform," the central bank said. "The changes were treated as orders from the lenders and not as necessary reforms which cannot be postponed without disastrous consequences."

The bank stressed that in order for the situation to improve and confidence to be restored in the economy, Greece's pledges taken in return for its rescue loans must be implemented "to the letter."

Harsh austerity measures, however, have led to frequent strikes and often violent demonstrations. In the latest labor action, dock workers walked off the job Monday at the start of what they have vowed will be rolling 48-hour strikes. Farmers on islands have argued the strike will leave them facing huge losses as they will be unable to transport their produce to the main urban markets on the mainland.

Sporadic instances of violence have also occurred. Police arrested a man armed who had stormed into a tax office in the Greek capital with a shotgun and fired a shot Monday morning. Police said nobody was injured in the shooting. The man's motives were not immediately clear.

Meanwhile, holders of insurance on Greek bonds are to learn how much they will earn from the country's bond swap deal, agreed this month with private creditors to lower the nation's debt load.

So-called credit default swaps, or CDS, act as insurance for holders of bonds in case of default. An international finance body has ruled that Greece's bond swap will trigger these CDS payouts and has estimated their total value at around $3.2 billion.

The actual amount paid out to CDS holders, however, will be somewhat less — analysts estimate around $2.5 billion — since the country is not defaulting on the full value of its bonds. Investors are taking real losses of about 75 percent of their bondholdings.

The size of the CDS payout will be determined Monday in an auction in which a panel of financial firms estimates the size of the losses on the Greek bonds.

Derek Gatopoulos contributed to this report.

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