CORRECTED – WRAPUP 2-Legal threat, ambiguity cloud Greek aid deal

(Corrects para 10 to make clear that 30 billion euros is for
first year, not to cover whole three year period)

* German economist threatens legal challenge over aid

* Long-term doubts over solvency persist

* Greek finmin sees no EU state blocking aid package

* Talks under way to clarify procedures of IMF involvement

* Moody’s says rating cut still more likely than not

(Adds Greek spokesman, Moody’s)

By Michael Winfrey and Madeline Chambers

ATHENS/BERLIN, April 14 (BestGrowthStock) – Investor doubts, a German
legal threat and persistent confusion over the terms of aid
strained Greece’s euro zone safety net on Wednesday, pushing
borrowing costs up and hitting bank shares.

A court challenge levelled by a German economist added to
ambiguity over how Athens and its euro zone peers would activate
the rescue package, ending a two-day relief rally that had seen
Greek debt costs fall from record highs.

Analysts said they saw little risk the EU/IMF package would
be blocked, a move that would threaten Greece’s short-term
liquidity ahead of an 8.5 billion euro bond coming due in May,
but long-term doubts over the management of Greece’s debt pile

The Greek government tried to quell doubts and its finance
minister said no country would prevent access to EU/IMF aid if
the European Commission and European Central Bank issued a
positive recommendation that it should be used.

But German Chancellor Angela Merkel has appeared reluctant
to help Athens ahead of a key regional election on May 9, as
voters there do not want to help a state that has flouted EU
budget rules for years.

Joachim Starbatty, a professor at Tuebingen University, was
quoted by the Rheinische Post as saying the package breached EU
rules because it offered Greece loans at below the market rate.

“We will file a suit at the Constitutional Court against the
credit from euro states,” Starbatty told the paper.

Starbatty, who had previously threatened to take legal
action if Greece was given the aid, was not immediately
available for comment. [ID:nLDE63D0YY]

Any legal challenge could take months and the court could
decide to put any aid for Greece on ice, some experts said.


Graphic on Greece, eurozone

For a new Interactive Factbox on Greece and its economy please
click on

For an analysis on the Greek debt plan [ID:nLDE63C1BR]


Germany’s finance ministry said the three-year euro zone aid
plan envisages a possible tranche of 30 billion euros in the
first year and talk of any other amount is “speculation”.

A German newspaper had quoted an unidentified member of the
German cabinet as saying the 30 billion euro package was only a
first step and could end up being “at least double the amount”.

Euro zone finance leaders have said they can quickly deliver
the funds if needed, although it was still unclear whether
individual states’ parliaments must vote to take part and
whether the deal would provide enough for Greece to meet
long-term borrowing needs of around 50 billion euros a year.

They have argued the deal, which expects an additional 10-15
billion euros in International Monetary Fund cash, is not a
bailout as it mostly comprises bilateral loans.

A Greek government spokesman tried to ease fears on
Wednesday, saying “all this talk about strange and complex
procedures recently about parliamentary approval is groundless”.

But opposition remained firm in euro zone anchor Germany.

“The founders of the European currency excluded the
possibility that the euro zone members would take on each
other’s debt. Bailouts are banned,” daily Handelsblatt wrote.

The Greek debt crisis has hit the common European currency
and raised concern about contagion of its peripheral members.

Greek bank shares lost 3 percent on Wednesday, and the
premium investors demand to buy 10-year Greek government bonds
rather than German Bunds rose to over 400 basis points, their
highest since hitting record highs last week.

“The statements on Sunday clarified a few doubts, but not
all of them,” said Giada Giani, an economist at Citigroup. “This
suggests overall that the pressure on Greece remains high, and
market volatility is likely to remain high.


Struggling to avoid becoming the first euro zone member to
ask for outside help, Greece has stuck to a plan to borrow on
markets rather than tap what would be the biggest multilateral
bailout ever attempted.

Greek Finance Minister George Papaconstantinou said EU and
ECB approval, which is part of the deal, would make it hard for
anyone to stop it if Greece decided to tap it. [ID:nLDE63C2HV]

He said Athens would consider factors other than debt costs
when deciding whether to activate the mechanism and would not
reveal the “red line” at which it could move to invoke the deal.

Announcement of the deal’s details gave Greece breathing
room on Tuesday, boosting demand at auctions of short-term debt.

But the government paid nearly 5 percent for 1.56 billion
euros in 6-month and 1-year papers, a high rate that added to
worries rising financing costs would hit its budget outlook.

By comparison, fellow euro zone laggard Portugal easily sold
2-year bonds, which usually carry a higher interest rate than
shorter term T-bills, at 1.715 percent on Wednesday.

Ratings agency Moody’s said Greece’s efforts to slash its
budget gap by around a third to 8.7 percent of gross domestic
product this year still faced high risks, and there was a more
than 50 percent chance of it downgrading Greece within the next
12-18 months. [ID:nLDE63D135]

A crucial factor is rising debt maintenance costs, which
rose 14.5 percent to 2.8 billion euros in the first quarter,
well above the 5.1 percent target.

“The interest rate environment … may take some time to
settle down, particularly because of the government’s
credibility deficit,” Moody’s analyst Sarah Carlson told

(Additional reporting by Harry Papachristou, George
Georgiopoulos and Ingrid Melander; writing by Michael Winfrey,
editing by John Stonestreet)

CORRECTED – WRAPUP 2-Legal threat, ambiguity cloud Greek aid deal