Special economic zones proposed

European Commissioner Olli Rehn proposed on Monday the creation of special economic zones in Greece in a bid to put an end to the recession in this country.

The economic and monetary affairs commissioner was responding to a question by Nikos Chountis, a Greek member of the European Parliament, recommending that Athens create zones which would have a different tax and labor status to the rest of the country.

Observers saw Rehn?s statement as a follow-up to that of German Finance Minister Wolfgang Schaeuble, who referred to Greece giving up its national sovereignty.

As the Greek Finance Ministry is preparing to begin negotiations with the private sector in the context of the proposed halving of bonds, Germany is toughening up its stance in an effort to secure the highest possible private sector involvement (PSI) in the haircut, which the markets are already signaling may not be enough.

Schaeuble warned on Monday that if the banks do not participate in the deal to a satisfactory degree, the eurozone will not hesitate to make unilateral decisions. Although the bloc prefers a voluntary haircut, ?we do not rule out a less consensual approach,? the German minister told Der Spiegel magazine.

The German pressure seems to be paying off, as Charles Dallara, managing director at the Institute of International Finance, said yesterday that the new proposed bond swap has won initial backing from 40 to 45 firms holding more than 80 percent of eligible Greek debt.

The firms took part in consultations while the IIF negotiated with European leaders on the exchange, which will be voluntary, Dallara told reporters in Washington.

On the other hand, the governor of the German central bank, Jens Weidmann, expressed reservations about the eurozone deal, saying it may reduce the Greek debt but will not correct the wrongs of the Greek economy.

International investor George Soros went further, saying that the agreement will not last for any longer than three months, suggesting that the haircut ?will only reduce the Greek debt by just 20 percent because it only concerns the private sector and not the debt held by the European Central Bank and the rest of the public sector.?