Greece may take more debt steps as EU visit looms

ATHENS (Reuters) – Greece may soon announce new steps to cut its budget deficit, a government minister said on Sunday, amid signs that Athens might be nearing a deal with European Union governments to ease the Greek debt crisis.

Economy Minister Louka Katseli said Prime Minister George Papandreou would review Greece's fiscal plans, after an EU mission to Athens last week decided that the country's austerity measures were not strong enough to reassure financial markets.

"If more measures are to be taken, they will be announced soon," Katseli told state television. "The red line for everyone in this government is that the measures are effective, bringing additional revenues, and that they are socially just."

EU Economic Affairs Commissioner Olli Rehn was due to visit Athens Monday for talks with Greek officials about the crisis, which has rocked Europe's debt market and undermined investors' confidence in the common euro currency.

The market has been speculating that Rehn's visit, if successful, could move EU governments closer to announcing some form of emergency aid for Greece in exchange for a pledge by Athens to take fresh budget steps.

A German member of the European Parliament, Jorgo Chatzimarkakis, said Saturday that Germany, France and the Netherlands would buy Greek bonds in the deal, using state-run banks such as Germany's KfW and France's Caisse des Depots.

It was unclear how Chatzimarkakis, who is not a high-profile politician in Germany, might know of such a plan. His comments echoed a similar report Saturday in major Greek newspaper Ta Nea, which quoted unnamed sources.

GERMANS, DUTCH SAY NO DECISION MADE

German Chancellor Angela Merkel said in a television interview Sunday that she was grateful the Greek government was planning "very courageous" steps to curb its budget deficit.

She repeated comments, first made last week, that the euro was in its toughest period since its launch in 1999 -- possibly an effort to prepare German public opinion, which is strongly against aiding Greece, for intervention by Berlin in the crisis.

But Merkel stressed no decision had been taken on financial assistance to Greece, and that Berlin continued to expect Athens to take whatever steps were necessary to resolve its problems.

"There have been absolutely no other decisions taken. I would like to say that quite clearly," Merkel said. "Greece has to do what's necessary for Greece. But that is also important for all of us."

The Dutch government said there were no plans at present to buy Greek bonds, and that the top priority for the Netherlands was to ensure the stability of the euro.

"We don't want to spend taxpayer money to save the Greeks," said Jan Kees de Jager, appointed as finance minister last Tuesday in a caretaker government that will govern until elections on June 9.

The Greek finance ministry and the European Commission declined to comment on the reports of an aid deal.

But there were other signs of intensified diplomatic efforts to resolve the crisis. Papandreou said Friday he would visit Berlin for talks with Merkel on March 5, and Deutsche Bank Chief Executive Josef Ackermann met Papandreou in Athens Friday.

French Economy Minister Christine Lagarde said Sunday that her government and others were studying options to tackle the crisis.

"I have no doubt that Greece will be able to refinance itself, using means which we are currently exploring, and for which we have a number of propositions.

"It would involve private partners or public partners or both," Lagarde said, declining to give further details.

German and French media reports have suggested governments in the 16-country euro zone might offer aid worth a total of 20 to 25 billion euros ($27 billion to $34 billion) to Greece. Officials have declined to comment on the size of any aid plan.

Both Greece and EU governments face growing pressure to act from the debt market, which fears Athens might lose its ability to borrow at affordable rates as a funding crunch approaches.

Greece has said its funding needs are met until mid-March, and it will need to refinance about 20 billion euros of debt maturing in April and May. It is preparing to tap the euro debt market with its second bond issue this year.

Rehn was due to meet Papandreou at 9:15 a.m. EST Monday, Papandreou's office said. Rehn was also expected to meet Katseli at 5 a.m. EST and Greek Labor Minister Andreas Loverdos at 10 a.m. EST.

Any progress toward an aid plan for Athens could boost the euro, as well as bond prices and banking stocks in Greece and other indebted countries on the euro zone's southern periphery.

But any rally by the euro might be brief, because investors would also worry that a dangerous precedent was being set for Germany and other rich states in the zone to take on the liabilities of poorer ones.

(Additional reporting by Matthias Sobolewski and Erik Kirschbaum in Berlin, Reed Stevenson in Amsterdam, Astrid Wendlandt in Paris and Foo Yun Chee in Brussels; Writing by Andrew Torchia; editing by Mark Trevelyan)

Treasury needs record $361B April-June borrowing

WASHINGTON – The Treasury Department said Monday it will need to borrow $361 billion in the current April-June quarter, a record amount for that period.

It's the third straight quarter the government's borrowing needs have set records for those periods.

Treasury also estimated it will need to borrow $515 billion in the July-September quarter, down slightly from the $530 billion borrowed during the year-ago period. The all-time high of $569 billion was set in the October-December period.

The huge borrowing needs reflect the soaring costs of the $700 billion financial rescue program and the recession, which is nearing a record as the longest in the post World War II period.

The slump has cut sharply into tax revenue and boosted government spending for benefit programs such as unemployment insurance and food stamps.

The administration is projecting the federal deficit for the entire budget year ending Sept. 30, will total a record $1.75 trillion. A deficit at that level would nearly quadruple the previous record of $454.8 billion set last year.

To cover the government's heavy borrowing needs, Congress in February boosted the limit for the national debt to $12.1 trillion as part of the legislation that enacted President Barack Obama's $787 billion economic stimulus program. The national debt now stands at $11.1 trillion.

The government released its estimate of borrowing needs for the quarter before a news conference Wednesday when officials are scheduled provide exact details of how much debt the government plans to sell next week and in what maturity levels as part of Treasury's regular quarterly debt auctions.

The $361 billion estimate for borrowing this quarter compared with borrowing needs of just $13 billion in the year-ago period. Normally the government's borrowing needs shrink sharply in the April-June quarter because of all the tax revenue being collected.

The government announced in February that it was bringing back the seven-year note and doubling the number of 30-year bond auctions it would hold each year to help finance the surging borrowing needs.

Chrysler aims for Fiat but readies bankruptcy plan

WASHINGTON/NEW YORK (Reuters) – With a week remaining for Chrysler LLC to clinch a deal with Italy's Fiat (FIA.MI), the U.S. automaker is readying a bankruptcy plan but still focused on reaching an alliance with the support of the Obama administration, people with knowledge of the discussions said on Thursday.

Fiat, meanwhile, also emerged as a potential buyer for General Motors Corp's (GM.N) Opel unit in a deal that would mark the Italian automaker's emergence as a major global player with a role in the restructuring of two of Detroit's sputtering carmakers.

Chrysler, which faces a government-imposed April 30 deadline to cement an alliance with Italy's Fiat or face a cut off of its federal funding that could trigger its liquidation in bankruptcy, has been preparing for a Chapter 11 filing as a contingency, a person with direct knowledge of the plans said.

A U.S. official said the focus for the autos task force headed by former investment banker Steve Rattner was for brokering a Chrysler-Fiat deal even as it prepared for the alternative.

"In a negotiation like this, everything is speculation until there's a deal," the official said.

"It should surprise no one that the administration is planning on contingencies, but we remain focused on the goal and engaged with all stakeholders to bring Chrysler and Fiat to a working partnership."

Both people spoke on the condition they not be named because the talks involving Chrysler, Fiat, related unions and bank lenders are confidential and ongoing.

Chrysler said in a statement it would follow the task force's guidance and was keeping "all options open." It pledged work with stakeholders to "reach a successful conclusion" to its restructuring.

Earlier, the New York Times and The Wall Street Journal reported Chryslers' bankruptcy plans could include a filing as soon as next week that would allow Fiat to emerge with Chrysler's strongest assets.

One major sticking point has been attempts by the administration to get Chrysler's secured lenders to restructure some $7 billion in first-lien debt they now hold.

The sides have been exchanging proposals and the banks were expected to make another as soon as Friday, according to sources briefed on those talks.

U.S. Sen. Debbie Stabenow, a Michigan Democrat, urged lenders to reach a deal to save Chrysler.

"The clock is ticking for hundreds of thousands of current Chrysler employees, retirees, suppliers and dealers," Stabenow said in a letter to JPMorgan Chase & Co (JPM.N), Morgan Stanley (MS.N), Citigroup Inc (C.N), Goldman Sachs Group (GS.N), Elliot Management, Stairway Capital Management, Perella Weinberg Partner and Oppenheimer Funds.

Separately, the head of the Canadian Auto Workers union said late on Thursday that he expected to have a cost-saving deal completed with Chrysler by Friday morning.

Canada is also considering providing financing to both Chrysler and GM if the companies end up filing for bankruptcy, Industry Minister Tony Clement said.

'NO REASON WHY THIS SHOULD NOT HAPPEN'

Fiat Chief Executive Sergio Marchionne said on Thursday it was premature to consider picking up Chrysler's assets in a bankruptcy proceeding.

"Based on what I know today, I see no reason why this should not happen and I can only confirm our unwavering commitment to get this transaction done," Marchionne told reporters after Fiat reported quarterly results.

GM, meanwhile, is facing a June 1 deadline to complete its restructuring, with the aid of up to $5 billion in new government bailout funds, or face likely bankruptcy.

In a move underscoring the continued pressure it faces, GM said on Thursday it would slash production over the next three months to cut its inventory of cars and trucks and avoid the risk of an "uncontrolled shutdown" from the financial crisis at bankrupt supplier Delphi Corp (DPHIQ.PK).

GM and Chrysler have both been hit by unplanned production shutdowns in the past several years due to problems at suppliers. GM said it wanted to avoid something similar if its negotiations with Delphi's lenders failed to produce a deal for its former subsidiary to emerge from bankruptcy.

"We believe that continuity of supply to GM will be best assured by resolving the issues that will allow Delphi to emerge successfully from Chapter 11," Delphi spokesman Lindsey Williams said in a statement.

GM's sweeping production shutdown represents one of the deepest cutbacks by any of the major U.S. automakers during a four-year downturn that has driven the industry to the brink of collapse with sales near 30-year lows.

Analysts said GM's move would add to the financial stress on its key suppliers. Shares in key suppliers tumbled in response.

American Axle & Manufacturing Holdings Inc (AXL.N), which relies on GM for three quarters of its sales, closed down 21 percent on the New York Stock Exchange.

(Reporting by Ross Colvin and John Crawley in Washington, Jui Chakravorty Das in New York, David Bailey and Kevin Krolicki in Detroit; Editing Bernard Orr and Carol Bishopric)

Madoff 'victims' do math, realize they profited

NEW YORK – The many Bernard Madoff investors who withdrew money from their accounts over the years are now wrestling with an ethical and legal quandary. What they thought were profits was likely money stolen from other clients in what prosecutors are calling the largest Ponzi scheme in history. Now, they are confronting the possibility they may have to pay some of it back.

The issue came to the forefront this week as about 8,000 former Madoff clients began to receive letters inviting them to apply for up to $500,000 in aid from the Securities Investor Protection Corp.

Lawyers for investors have been warning clients to do some tough math before they apply for any funds set aside for the victims, and figure out whether they were a winner or loser in the scheme.

Hundreds and maybe thousands of investors in Madoff's funds have been withdrawing money from their accounts for many years. In many cases, those investors have withdrawn far more than their principal investment.

"I had a call yesterday from a guy who said, 'I've taken out more money then I originally put in, but I still had $1 million left with Madoff. Should I file a $1 million claim?'" said Steven Caruso, a New York attorney specializing in securities and investment fraud.

"I'm hard-pressed to give advice in that situation," Caruso said.

Among the options: Get in line with other victims looking for restitution. Keep quiet and hope nobody notices. Return the money. Or hire a lawyer and fight to keep profits that were probably fraudulent.

No one knows yet how many people will emerge as net winners in the scandal, but the numbers appear to be substantial. Many of Madoff's long-term investors have, over time, cashed out millions of dollars of their supposed profits, which routinely amounted to 11 percent to 15 percent per year.

Jonathan Levitt, a New Jersey attorney who represents several former Madoff clients, said more than half of the victims who called his office looking for help have turned out to be people whose long-term profits exceeded their principal investment.

"There are a lot of net winners," he said.

Asked for an example, Levitt said one caller, whom he declined to name, invested $1.8 million with Madoff more than a decade ago, then cashed out nearly $3 million worth of "profits" as the years went by.

On paper, he still had $4 million invested with Madoff when the scheme collapsed, but it now looks as if that figure was almost entirely comprised of fictitious profits on investments that were never actually made, leaving his claim to be owed anything unclear.

Other attorneys report getting similar calls.

Under federal law, the court-appointed trustee trying to unravel Madoff's business can demand that people who profited from the scheme return some or all of the money.

These so-called "clawbacks" are generally limited to payouts over the last six years, but could still amount to big bucks for some investors.

When a hedge fund run by the Bayou Group collapsed and was revealed to be a Ponzi scheme in 2005, the trustee handling the case sought court orders forcing investors to return false profits. Many experts anticipate a similar process in the Madoff case.

Applying for the aid could give the trustee evidence he needs to initiate a clawback claim. On the other hand, investors who ignore the letter would most likely forfeit any chance of recovering lost funds.

No matter how they respond, it may only be a matter of time before investors wiped out in the scandal turn on those who unknowingly enjoyed the fruits of the fraud.

"The sharks are all circling," Caruso said.

Some hedge funds that had billions of dollars invested with Madoff are already going through years worth of records, trying to figure out which of their investors withdrew more than they put in.

That data could be used by the fund managers to defend themselves against lawsuits, or go after clients deemed to have profited from the scheme and get them to return the cash.

The future is equally cloudy for investors who cashed out entirely before Madoff's arrest.

Their lucky ranks include the Fort Worth Employees Retirement Fund, which invested $7.5 million in a Madoff-related hedge fund years ago, then cashed out last summer after a consultant raised concerns about the investment.

The consultant, due diligence firm Albourne Partners, of London, had long been skeptical of Madoff's reported investment returns.

Fort Worth walked away with $10 million — a sum that included $2.5 million in what now appears to be fraudulent profit.

A lawyer for the public pension fund, Robert Klausner, said he couldn't discuss whether that money might have to be returned, but said the decision to divest was not made because of "special or inside knowledge of what was later reported to be misconduct."

"There just aren't any winners in this deal," Klausner said.

Stephen Harbeck, chief executive of the Securities Investor Protection Corp., told The Associated Press neither he nor the trustee handling Madoff's business, Irving Picard, have decided what to do about Madoff investors who made money. He predicted the process would be "a legal and accounting nightmare."

"Between money in and money out, versus statements received, it is a real difficult pile of issues," Harbeck said. "There are some customers who would want us to use clawback procedures against other customers, and there are other customers who would resist that."

Asked if SIPC would rule out paying claims to investors who appear to have net profits, Harbeck said it was "too early" to say. He encouraged people to file claims, even if they think it might ultimately be denied, but said investors had no legal duty to do so.

Picard will oversee the liquidation of assets from Madoff's investment firm as the SIPC attempts to help investors recoup their money. The SIPC was created by Congress in 1970 to protect investors when a brokerage firm fails and cash and securities are missing from accounts.