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Commission, IMF offer Greece lifeline

International lenders offered Greece a lifeline to save it from defaulting next month after Prime Minister George Papandreou Thursday (16 June) faced down rebels in his socialist party against EUIMF-ordained austerity measures.In a statement intended to soothe markets, the European Union's top economic official, Olli Rehn, said he expected the EU and the International Monetary Fund to release a crucial 12-billion-euro loan tranche in early July to keep Athens afloat.

Rehn acknowledged it would take longer to put together a second rescue package for the heavily indebted state, due to differences over how to make private investors share the burden, but he called for decisions by mid-July rather than leaving the issue until September, as EU paymaster Germany is suggesting.
"I am confident that next Sunday, the Eurogroup will be able to decide on the disbursement of the fifth tranche of loans for Greece in early July. And I trust that we will be able to conclude the pending review in agreement with the IMF," he said.
An IMF spokeswoman said continued financial support depended on Athens adopting agreed economic policy reforms and approval by the Fund's board, where emerging nations are growing critical of pouring more money into Europe.
"Progress is being made in the discussions to ensure the full financing of the programme, and we anticipate a positive outcome on this at the next Eurogroup meeting," she said, referring to the eurozone ministerial meeting in Luxembourg next Monday.
The political drama in Athens, where mass street protests turned violent and efforts to form a national unity government collapsed on Wednesday, rocked financial markets already spooked by dithering in Europe over a second bailout for Greece.
Government reshuffle
Greek Prime Minister George Papandreou named a new cabinet Friday (17 June) to muster support for painful economic reforms, despite public unrest and a split in his party that could push the country closer to debt default.
He is likely to jettison Finance Minister George Papaconstantinou, author of a belt-tightening programme that has fuelled public anger, national strikes and a violent demonstration this week on the steps of parliament.
Papandreou delayed announcement of the new team late on Thursday in what looked like a signal he was struggling to find a suitable person for the key financial post. The reshuffle will be announced at 9 a.m. (0600 GMT), the government said.
Three deputies have quit from Papandreou's Socialist Party in as many days in protest at a five-year, 28-billion-euro austerity package that the European Union and International Monetary Fund have set as a condition for more aid.
Two of the three abandoned Papandreou on Thursday following a failed bid to form a ruling coalition with the conservative opposition, but they will be replaced with party loyalists, leaving his thin parliamentary majority intact.
The protests against the measures, which include plans to raise 50 billion euros through privatisations, have combined with political infighting and eurozone indecision to severely spook international markets.(Source: EurActiv with Reuters)
French President Nicolas Sarkozy said EU leaders had the duty to safeguard the euro, and that events in Greece also concerned France, as for his country "the first source of stability is the euro," EurActiv France reported.
Speaking at G120, an international meeting of agrarian producers on Thursday, Sarkozy rejected the arguments of those advocating the return of national currencies, such as Marine Le Pen, leader of the far-right Front National and a candidate for the presidential elections in May 2012.
"Without the euro, there is no Europe, and Europe is peace and prosperity," he said.
The French president said that EU leaders had agreed in general terms on providing assistance to Greece, with the remaining differences being of a "formal" nature.
Sarkozy called on EU leaders "to leave behind national quarrels and recover the sense of our common destiny".
The White House said it was monitoring the situation and that the Greek debt crisis was a headwind to the US economy.
China's "vital" interests are at stake if Europe cannot resolve its debt crisis, the Chinese Foreign Ministry said on Friday as it voiced concern about the economic problems of its biggest trading partner.
At a media briefing ahead of Chinese Premier Wen Jiabao's visit to Europe next week, Vice Foreign Minister Fu Ying made plain that China had tried to help Europe overcome its troubles by buying more European debt and encouraging bilateral trade.
"Whether the European economy can recover and whether some European economies can overcome their hardships and escape crisis is vitally important for us," Fu said.
"China has consistently been quite concerned with the state of the European economy," she said.
China is a natural prospective investor in European assets and government debt because it has $3.05 trillion in foreign currency reserves, the world's largest. With a quarter of the reserves estimated to be invested in euro-denominated assets, it is clearly in Beijing's interest to help Europe survive its debt turmoil.
Beijing has said in the past that it has bought Greek debt, but has never revealed the size of its investment.
Analysts said even if the new government managed to win a confidence vote slated for Tuesday and passed the new reforms, the chances of it being able to rein in effectively a 340-billion-euro debt load were diminishing.
"If the political and social problems continue to deepen, then market pressures for a more immediate resolution to the crisis will build," Capital Economics wrote in a note.
"And even if the pressures subside and some form of agreement can be reached next month, it seems very unlikely that this will amount to a decisive solution to Greece's fundamental economic and fiscal problems."