Talks on second bailout package under way: Greek PM

Greece is talking with international creditors about a second bailout package "roughly equal" to the first €110-billion ($157-billion) rescue it accepted a year ago, the prime minister confirmed Sunday.

George Papandreou also blamed Greece's bloated and inefficient state sector for bringing the country to its knees and vowed to effect deep changes with a fall referendum on the constitution that would make it easier to get rid of inept officials or workers.

His proposals were a populist response to widespread popular anger at politicians as austerity measures cut deeply into disposable incomes. Riots erupted on the streets of Athens last week against a new round of spending cuts and tax hikes being demanded by the European Union and the IMF.

"I ask for a vote of confidence because we are at a critical juncture ... the debt and deficits are national problems that have brought Greece into a state of dependence that may have protected us from bankruptcy, but which we need to get out of," Mr. Papandreou said, opening a three-day parliamentary debate that culminates Tuesday in a confidence vote.

He dismissed any calls to default on the country's massive debt, saying this would be "a catastrophe for households and banks alike" and made it clear he would not back off from efforts to reduce the debt.

Mr. Papandreou called for an autumn referendum on changes to the political system, including to the country's constitution. He said he will appoint an independent commission of up to 25 people to collect proposals from citizens and submit a report before the fall vote.

Mr. Papandreou said the constitutional revision will make it easier to prosecute delinquent government officials, now protected by a strict statute of limitations. He added other changes would include reducing the number of deputies, more transparent funding of political parties and candidates and a new electoral system, possibly even with term limits.

European donors and the International Monetary Fund are demanding that Greece pass new austerity measures before they release the next €12-billion ($17-billion) loan from the first rescue package.

Many experts say Greece's debt load is too great and expect it to eventually default. The European Central Bank, however, has been adamant that a Greek default is unthinkable because it could set off an unpredictable chain reaction that would badly hurt European banks, roil markets and make it harder for other indebted countries to cope. The ECB also has significant exposure to Greek debt.

Spooked by financial markets' reaction to Greece's political turmoil, Germany on Friday dropped its demand that the private sector be forced to share in the pain of a second Greek bailout. Mr. Papandreou also reshuffled his Cabinet and named a new finance minister, Evangelos Venizelos, who was in Luxembourg on Sunday at a EU finance ministers meeting.

Mr. Papandreou said the original loan's assumption that Greece would be able to borrow from the markets in 2012 was no longer valid, but insisted his Socialist government had done all it was required to, passing painful austerity measures and reducing the deficit as a percentage of GDP by 5 per cent in 2010.

Instead, he blamed ratings agencies, tax havens, "derivatives speculators" and the media for allegedly spreading panic and discouraging potential investors.

Mr. Papandreou said his government had tried from the start to negotiate lower interest rates and reschedule payments for the first bailout package, something he said his government finally achieved in March.

"This way, we will save, by 2015, €48.5-billion ($69-billion) in debt repayments, including €4-billion ($5.7-billion) on interest alone," he said.

Opposition leader Antonis Samaras, meanwhile, called for early elections and said Mr. Papandreou's referendum proposal was an evasive manoeuvre masking his inability to govern. He demanded that Mr. Papandreou be tougher in negotiating bailout terms with international creditors and repeated that raising taxes and cutting wages and pensions was the wrong way to go.

"We do not ask you to better apply the wrong recipe but to change it," Mr. Samaras said.

Mr. Samaras also proposed that Mr. Papandreou reactivate stalled highway projects to create jobs and seek faster EU funds for such projects.

With 155 deputies in the 300-seat parliament, Mr. Papandreou is expected to win the confidence vote. His next task is to pass the new austerity package by the end of the month, despite near-daily protest marches and sit-ins.

Protesters who flock each afternoon to Athens' central Syntagma square in front of parliament have been wearing stickers saying "We owe nothing, we'll sell nothing, we'll pay nothing" - rejecting creditors' demands to sell off state assets.

Keeping up the anti-austerity drumbeat, GENOP, the powerful union of state electric employees, was to begin rolling 48-hour strikes at midnight Sunday, threatening blackouts across the country.

Unions are planning a 48-hour general strike on the date, yet to be determined, when parliament votes on the new austerity package.