European Union and International Monetary Fund officials todaycomplete a review of Greece's plan for 78 billion euros ($113billion) in asset sales and austerity measures as they prepare thenation's second bailout in little more than a year.

The assessment caps a week when Greece's fiscal crisis worsenedenough for Moody's Investors Service to raise the probability of adefault to 50 percent. Greek Prime Minister George Papandreou willdiscuss the findings at 3 p.m. on a visit to his Luxembourgcounterpart, Jean-Claude Juncker, who leads the group of euro-areafinance ministers.

“The medium-term plan is largely completed and some technicaldetails remain,” George Petalotis, Papandreou's spokesman, saidyesterday. “There were no major hiccups.”

The lifeline may incorporate a role for bondholders as Europeanleaders try again to prevent the euro area's first sovereigndefault. Their May 2010 rescue failed to stem an investor exodusfrom Greece and the Greek government now faces a funding gap of 30billion euros next year with 10-year borrowing cost above 16percent, Europe's highest debt load and the economy in a three-yearslump.

Protests

Papandreou is promising 6.4 billion euros of spending cutsthis year, another 22 billion euros up to 2015, and 50 billioneuros in sales of assets including Hellenic TelecommunicationsOrganization SA and Public Power Corp SA. The pledges are key tosecuring a fifth payment of loans under last year's 110 billion-euro EU-led rescue as well as more financing over the next twoyears as borrowing costs lock Greece out of markets.

Members of the PAME labor union took over the Finance Ministryoffices in central Athens today, preventing employees from enteringbuilding. They hung a banner from the roof calling for a generalstrike to oppose the measures.

Moody's downgraded Greece to Caa1, on a par with Cuba, andraised the nation's risk of default on June 1 after policy makersconsidered asking investors to reinvest in new Greek debt whenexisting bonds mature. The move prompted Greek 10-year bonds tofall to the lowest since January.

Greece's two-year note yields headed for their biggest declinein 11 weeks, falling below 24 percent for the first time sinceApril. Ten-year bonds rose, pushing the yield down four basispoints to 16.21 percent.

The yield difference, or spread, between 10-year German bundsand Greek securities of a similar maturity narrowed five basispoints to 1,320 basis points.

'D' Rating

“The general perception is that Greece will head to someform of restructuring, and eventually the ratings will probablymove to D,” said Brian Barry, an analyst at Evolution SecuritiesLtd. in London. “For a sovereign rating to fall from about A tothis level is new territory.”

Moody's today cut the ratings on eight Greek banks, includingthe nation's largest, National Bank of Greece SA.

Juncker said yesterday European authorities want a finaldecision on a Greek aid package by the end of the month.

“My personal feeling and knowledge is that Greece will have anew program submitted under strong conditionality,” Juncker toldreporters in Aachen, Germany. He said the report by the “troika” ofofficials from the EU, IMF and European Central Bank should beissued in the coming days.

Greek Progress

The troika has been reviewing Greece's progress in meetingthe terms of the bailout since May 11. The conclusions will beconsidered when EU finance ministers meet, which may be as early asnext week.

Europe's financial leaders need to hammer out a revised Greekpackage by the end of June, in time to persuade the IMF to pay outits share of the next tranche of loans and before a summit of EUleaders on June 23-24. The IMF had indicated that it would withholdits share of the June payment unless the EU comes up with a plan toclose Greece's funding gap for 2012.

The Washington-based lender provided 30 billion euros ofGreece's original loans, along with a third of the loans sincegranted to Ireland and Portugal as the spreading crisis threatenedthe integrity of the euro.

Policy makers have in recent days narrowed in on bond rolloversas a pillar of any new aid package. The step would be favored bythe ECB, according to two officials familiar with the situation,because it would skirt the risk of any agreement being classifiedas a default. Investors may be given preferred status, highercoupon payments or collateral, said two other EU officials familiarwith the situation.

Rollovers

About 55 percent of investors in Greek government bondswould likely roll over holdings of securities maturing through 2013to help the nation manage its budget deficit, according to INGGroep NV.

“If there was a 100 percent take-up of this idea, Greece wouldsave 15 billion euros in 2011, 33 billion in 2012 and 29 billion in2013, which would more than cover the gap being left by not gettingback to capital markets,” Padhraic Garvey, head of developed-marketdebt in Amsterdam, wrote in an e-mailed note today. “In reality thevoluntary take-up would likely be dominated by bankhold-to-maturity portfolios, Greek domestics and the EuropeanCentral Bank, which would mean a more likely voluntary take-up ofabout 55 percent.”

Greece's debt is likely to mushroom to 157.7 percent of grossdomestic product in 2011, the highest in euro history, the EuropeanCommission said May 13. It predicted a 3.5 percent economiccontraction, shedding doubts on whether Greece will generate thetax revenue to pay off its debts.

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