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Greek bailout masks Argentine slippery slope: analysts

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(BRUSSELS) - Europe's bailout will only stick a patch on Greek finances and do nothing for the euro's long-term health, with the slippery slope to an Argentina-style default a real concern, analysts warn.

"It all seems horribly reminiscent to those early days when Argentina slid towards a cruel collapse," said Canadian Peter Boone, a research associate at the London School of Economics, in a detailed paper that argued against International Monetary Fund support.

Money simply "gives time to politicians to understand that the situation is very serious -- and that can have very serious consequences" if leaders do not take appropriate measures, added Zsolt Darvas, a research fellow at the Bruegel Institute in Brussels.

While Boone's stark warning was posted online before the other 15 countries that share the euro announced they were prepared to loan Athens up to 30 billion euros (41 billion dollars) this year, with another 15 billion to come from the IMF, the commitment to step in had already been made.

Interviewed by AFP after an initially lukewarm response from markets began to cool further, Boone insisted that financial aid, at below-market but still high interest rates, was simply "not the right solution."

He said Greece called its current budget"austerity, but in reality it is a budget designed by a weak government that is unable to make tough decisions needed to solve the crisis."

The EU funds, assuming they can eventually be extracted, "will beexhausted in roughly eight months at current spending rates," Boone said.

Add another three months for the IMF contribution, and Greecewill only havemore debt and "will therefore need even larger fiscal cuts.

"Nothing has changed so far," he insisted.

Boone recalled that the Washington-based lender of last resort acknowledged in internal reports that it took the wrong decisions in the lead-up to Argentina's 2001 meltdown.

"By providing more funds, the IMF just kicked the can a short distance down the road, and likely made Argentina's final collapse even more traumatic than it would otherwise have been."

Similarly, "Greece has been living on borrowed money formany years, and ... at some point the Greek workers, union members and pensioners need to face this sad fact," he noted.

The fear in Germany and at the European Central Bank -- whose president, Jean-Claude Trichet opposed calling in the IMF, only for political leaders to change tack -- is that other weak eurozone countries will also be encouraged to seek help if they see subsidised bailout rates on offer.

Boone predicted an upsurge in "nationwide strikes, violence and chaotic default," with large-scale emigration further reducing the country's tax take.

"The private sector, as in the case of Argentina, will simply not want to touch their debt."

The legendary financier George Soros, who made a huge profit by betting against sterling in 1992 as Britain was forced to withdraw the currency from the pre-euro continental exchange rate mechanism, is of the same view.

If Athens is forced to pay interest rates on borrowings of around five percent, as the EU is proposing, it could push Greece even deeper into a "debt spiral," said the 79-year-old, calling instead for a "guarantee mechanism."

Meanwhile, at French bank BNP Paribas, analysts noted on Wednesday that Greece still needs to borrow about 6.5 billion euros (8.85 billion dollars) by the end of May.

While the good news was that Greece "is further ahead with its financing programme" after a successful short-term loan notes issue, the bad news was that "its ability to raise medium and long-term funds is still questioned."

Even the EU monies are far from guaranteed.

German has compared the EU safety net to a "fire extinguisher, while European Commissioner for Economic and Monetary affairs Olli Rehn said Wednesday he was planning to outline terms on May 3 making "this safety net of last resort so unattractive that no country voluntarily wants to end up" calling in the funding.


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