Greece presses banks to help in debt crisis

ATHENS, Greece -- Greece's new finance minister said the government has been encouraging Greek banks to participate in a solution to the country's crippling debt crisis, just days ahead of a crucial Parliamentary vote that could stave off a devastating default.

Venizelos, who was in discussions Thursday with the country's international creditors over critical austerity measures that must be passed by Parliament next week, also announced a new round of tax increases on crisis-weary Greeks.

The minister said the government was encouraging a solution along the lines of the so-called "Vienna initiative," according to which investors are asked to voluntarily renew their debt holdings as they expire.

"The Vienna process is totally voluntary," Venizelos said. "Are we encouraging the Greek banks to participate? The answer is yes."

A Vienna initiative approach was used successfully in 2009 to help East European countries during the global financial crisis. The worry over such a rollover of debt is that it may be considered a default by ratings agencies.

A Greek default could drag down Greek and European banks, endanger the finances of other weak eurozone countries such as Portugal, Ireland and Spain, and potentially spark turmoil in global markets.

Venizelos also outlined new taxes in the austerity measures, including a small tax increase on heating fuel and lowering the tax-free bracket for income to 8,000 euros per year from 12,000. Those younger 30 and older than 65 would be exempt from the "small tax" on annual incomes between euro 8,000 and 12,000 euros, he said.

"We are seeking to do what is best for the country and the people," Venizelos said.

Greece's creditors, particularly its partners in the 17-country eurozone, are demanding Greek lawmakers back budget cuts and taxes worth 28 billion euros in the austerity bill, and an additional implementation law by the end of June.

Only then will they approve the disbursement of the next batch of loans, worth 12 billion euros, from Greece's 110 billion-euro bailout, without which the country will default on its debts in mid-July.

Both bills will be voted on next week, with the second of the two on Thursday afternoon, completing the process, said Finance Minister Evangelos Venizelos.

The minister said he was still in talks with officials from the European Commission, International Monetary Fund and European Central Bank, known as the troika, more than 5.5 billion euros' worth of savings that are part of the 28 billion-euro austerity program.

Passage of the bills is also crucial for Greece to get a second international bailout. It has become clear the current 110 billion-euro package of bailout loans it began receiving in May 2010 will not be enough to prevent Greece from defaulting on its debts as the country remains locked out of international bond markets.

Even if it gets a second bailout, many economists think that Greece will have to restructure its debts in some shape or form in the coming years, especially if the economy shrinks further.

Venizelos' talks with the troika in Athens come as European Union leaders gather in Brussels for a summit expected to be dominated by the Greek crisis.

Leaders were also expected to reinforce their message of fiscal austerity to Prime Minister George Papandreou.

Papandreou is to have talks within a smaller group including German Chancellor Angela Merkel, French President Nicolas Sarkozy, EU President Herman Van Rompuy and European Central Bank President Jean-Claude Trichet ahead of the official summit start later in the evening.