EU ministers sign off on tougher budget rules (AP)

WROCLAW, Poland – Poland's finance minister says that after a yearlong dispute his European Union counterparts have signed off on tougher budget rules that punish overspending governments.

Jacek Rostowski said Friday that the 27 ministers approved a compromise that Polish officials had worked out with the European Parliament earlier this week.

Under the new rules, it will be easier to put sanctions on governments that breach the EU's limits on debts and deficits. Governments who ignore warnings that they risk breaking debt rules can also be punished.

Rampant overspending has come into focus during the eurozone debt crisis, which has already pushed three states into multibillion euro bailouts.

The parliament succeeded in centralizing the sanctions rules that states had tried to water down.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

WROCLAW, Poland (AP) — U.S. Treasury Chief Timothy Geithner suggested his European counterparts give their bailout fund more firing power by allowing it to draw on money from the European Central Bank, Ireland's finance minister said Friday.

Geithner addressed a meeting of eurozone finance ministers in Wroclaw, Poland, amid growing concerns that Europe's crippling debt crisis is hitting the U.S. and global economies.

The U.S. Treasury Chief "talked about a system of the EFSF fund leveraging additional resources in combination with the European Central Bank," said Michael Noonan, adding that he was keen to learn more about the scheme.

Leveraging the euro440 billion ($605 billion) European Financial Stability Facility could mean using eurozone states' guarantees for the fund to also back loans from the ECB, which would give the eurozone more crisis money without further commitments from governments.

However, a European official said there was opposition to such a scheme from Germany, the largest eurozone economy. The official was speaking on condition of anonymity because of the sensitivity of the discussions.

Germany has traditionally been skeptical of heaving more credit risk onto the ECB and has seen itself as a defender of the bank's independence from political quarrels.

Geithner's suggestion comes after the president of the European Commission, the EU's executive, as well as other high-raking European officials have called for a significant expansion of the EFSF.

In a summit in July, eurozone leaders equipped the fund with several new powers, such as giving pre-emptive credit lines to struggling countries and buying government bonds to support their prices during a market selloff. But economists say that, at its current size, the fund, which is already being depleted by rescue loans to Ireland, Portugal and an agreed second bailout for Greece, cannot effectively use the new tools.

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Greek ministers appeal to MPs to back austerity plan (Reuters)

ATHENS (Reuters) – Greek ministers urged wavering members of the ruling Socialist party on Saturday to do their duty in a knife-edge vote in parliament next week and back painful austerity measures that lenders demand as the price for fresh bailout loans.

Finance Minister Evangelos Venizelos offered to talk to any MP who might have concerns. "I believe that the sense of responsibility will ultimately prevail, the God of Greece is great," he said on TV station Alter.

With Prime Minister George Papandreou's majority down to a handful of votes, one deputy from his PASOK party said on Friday he would vote against the measures, joining another party rebel who announced his opposition earlier this month.

The mix of spending cuts, state selloffs and tax hikes demanded by international lenders to reduce Greece's enormous public debt has caused bitter resentment among ordinary Greeks, who have taken to the streets in daily protests.

A two-day general strike is planned next week to coincide with the votes, following a rolling series of strikes at companies including Greece's dominant electricity producer PPC, which is slated for privatisation next year.

Unable to borrow on the markets because of the ruined state of its public finances, Greece depends on international support to avert bankruptcy in the next few days, an event that could plunge the global economy into turmoil.

But international lenders have demanded a clear commitment to reform and if parliament fails to back either of two key austerity votes on June 29 and 30, the EU and the IMF may refuse to release a vital 12-billion euro funding that Greece needs immediately or to approve a new bailout package.

Athens accepted a package of 110 billion euros of EU/IMF loans in May 2010 but now needs a second bailout of a similar size to meet its financial obligations until the end of 2014, when it hopes to return to capital markets for funding.

Justice Minister Miltiadis Papaioannou urged his fellow MPs to back the unpopular measures. "They must shut their ears to all the criticism they are hearing and do their duty," he said in an interview on TV station Mega.

Despite heavy pressure from European leaders including German Chancellor Angela Merkel, the conservative New Democracy opposition party, has refused to support the package, meaning two or three votes either way could decide the outcome.

Papandreou's government now has 155 seats in the 300-strong parliament. Austerity measures have cost the Socialists five defections since their October 2009 election victory with a majority of 160 MPs.

The embattled prime minister last week sacrificed his previous finance minister, George Papaconstantinou, in a reshuffle to smooth the passage of the austerity plan but opinion polls still show him trailing the opposition.

Papandreou's MPs solidly backed the new government in a vote of confidence on Wednesday. But doubters maintain their opposition to higher taxes and the planned sale of shares in some state-controlled companies.

"Shops are shutting down every day and we are taking anti-growth measures," party maverick Thomas Robopoulos, a car dealer from Greece's second city, Thessaloniki, and one of the few businessmen in parliament told Reuters.

Austerity measures have pushed Greece into its deepest recession in 37 years, with GDP declining more than 4 percent last year. Unemployment has surged to a record 16.2 percent in March with youth jobless rates now at 43 percent.

Venizelos acknowledged that many of the measures he agreed with inspectors from the EU and the IMF late on Thursday were unfair and harsh, but said they were necessary to stave off default.

(Editing by Alistair Lyon)

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