UPDATE: Greece Plans EUR28 Billion Bank Bailout Package - Fin Min

UPDATE: Greece Plans EUR28 Billion Bank Bailout Package - Fin Min

(Adds further details.)

ATHENS -(Dow Jones)- The Greek government Wednesday unveiled a EUR28 billion package to help support Greek banks as part of a pan-European effort to restore confidence in the financial system.

The package comprises three specific measures. These include a government commitment to guarantee up to EUR15 billion worth of new, medium-term bond issues by Greek banks.

In addition, the government will inject into the banks up to EUR8 billion worth of specially-issued Greek government bonds to help shore up their capital base. Further, the government will also purchase up to EUR5 billion in preferred shares in the banks.

"The Greek financial system does not have the problems that exist in the financial systems in other countries. But without question, it has been affected by the international crisis," Finance Minister George Alogoskoufis said in a news conference. "The reason we are proceeding with this overall plan...is to confront whatever impacts may emerge in the economy (from the crisis)."

Greek banks have been largely insulated from the recent crisis on international credit markets. Nonetheless, the Greek government was among the first of the euro zone economies to issue a blanket guarantee on all bank deposits.

The government has since also introduced legislation insuring all deposits up to EUR100,000 for the next three years - a measure that is still awaiting approval in parliament.

However, in his remarks, Alogoskoufis stressed that Greek banks would be at a disadvantage to their E.U. counterparts if the government didn't extend its support in the way other E.U. countries had.

"There is an issue of equalizing the rules of competitiveness between Greek banks and the banks of other countries where the government has intervened with guarantees and big initiatives to support their banking systems," Alogoskoufis said.

In particular, he stressed that the government guarantee on newly issued bonds by Greek banks would mean that the Greek banks pay less interest than they otherwise would do. "With this measure, it means that banks pay less interest and so it avoids the transfer of higher interest rates to borrowers. And that minimizes the impacts on the economy," he said. "So with the government guarantee everyone pays lower interest rates."

Alogoskoufis also stressed that the new measures - that only will be in effect through 2009 - would have no impact on Greece's fiscal deficit, projected to be equal to 2.3% of gross domestic product this year.

The impact on Greece's debt mountain - equal to 92% of GDP, the second-highest ratio in the euro zone - would depend on how many of the measures were actually implemented.

Ministry Web site: www.mnec.gr

-By Alkman Granitsas, Dow Jones Newswires; +30 210 331 2881; alkman.granitsas@dowjones.com

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(END) Dow Jones Newswires

October 15, 2008 06:37 ET (10:37 GMT)


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