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Greece Likely to Need Another $20 Billion to Cut Debt

Health sector personnel shout slogans during a protest against austerity measures outside the Health Ministry in Athens, Greece, February 2, 2012.

Health sector personnel shout slogans during a protest against austerity measures outside the Health Ministry in Athens, Greece, February 2, 2012.

Financial experts are concluding that Greece may need another $20 billion cash infusion even if it eventually completes contentious negotiations with its private creditors to cut in half the money it owes them.

For weeks now, the Athens government has been attempting to finish talks with 32 large financial institutions to trim $130 billion of its debt. The goal is to cut Greece's debt so that over the coming years it would total no more than 120 percent of the country's annual economic output.

But European officials and the International Monetary Fund reached the conclusion this week that even as the private creditors assume losses that could total more than two-thirds of the amount they lent Greece, it still will not be enough to put the country on sound economic footing. News agencies Thursday quoted officials as saying the prospective shortfall is $20 billion.

Now the question is how the gap could be covered. Some European officials have suggested that the European Central Bank, or the 16 nations in the eurozone currency bloc other than Greece, should contribute toward a solution. But Europe's economic powerhouse, Germany, is balking. German Finance Minister Wolfgang Schaeuble said there is "no need" for further public assistance for Greece.

Aside from the deal with its private creditors, Greece is faced with imposing more unpopular austerity measures, even as it seeks a new $169 billion bailout, its second in two years. Athens says it will default on $19 billion in bonds in March without the new funding.

The head of the Greek Orthodox Church, Archbishop Ieronymos, urged the Greek government Thursday to reject what he described as "foreigners' blackmail and fatal recipes" for solving the country's economic woes. In a letter to Greek Prime Minister Lucas Papademos, the cleric said rising poverty in the county could trigger a "social explosion."

Meanwhile, China says it is considering increasing its investment in Europe's rescue funds for debt-ridden countries, and possibly providing aid through the International Monetary Fund.

After meeting with German Chancellor Angela Merkel in Beijing, Premier Wen Jiabao said China could invest in Europe's temporary bailout fund, or the new $656 billion permanent fund set to start in July.

Wen said it is "very urgent and important" to resolve Europe's two-year governmental debt crisis. He said China supports Europe's efforts and that it has confidence in the continent's economy.

China has $3.2 trillion in foreign exchange reserves, but Wen made no explicit commitments to provide more aid.

Merkel said the 17 countries in the European bloc that use the euro currency have to be disciplined in their spending and cannot continue to roll over their current debts without reducing them. She said the eurozone nations must collectively work to protect the euro.

"As a common currency, euro has made the European Union more powerful than before. Germany as a major exporting nation has largely benefited from this currency and we will carry out more constructive work within the framework of the eurozone and the European Union," said Merkel. "Since we have a common currency, all the member nations should do their homework properly, and move forward with their responsibilities to ensure they are a more reliable member. On the other hand, all the members must help each other because a common currency means we need to make joint efforts to safeguard it. Meanwhile, we need to be more cooperative and creative in making our economic policies and I believe in the future the European nations will stand closer to each other."

The German leader, who oversees Europe's strongest economy, is on a three-day trip to China aimed partly at assuring it that Europe is acting to resolve the debt crisis. European Union leaders earlier this week adopted a plan calling for tighter controls over the spending of individual countries, although Britain and the Czech Republic did not join the other 25 EU nations in approving the pact.

Some information for this report was provided by AFP.