Greek Party Leaders Prepare For Crucial Debt Talks

Published February 8, 2012 9:54AM (EST)

ATHENS, Greece (AP) — Greek coalition leaders are studying a draft deal on further austerity measures demanded to secure a new bailout that will determine whether the country avoids a looming bankruptcy next month.

The office of Prime Minister Lucas Papademos said Wednesday that the heads of the three parties backing his interim government received the 50-page document, drafted with the country's debt inspectors, earlier in the day.

A meeting of Papademos with the party leaders, originally scheduled for 1100 GMT, was postponed for 1300 GMT to give parties more time to study the draft.

The talks were postponed for three days to make time for exhaustive negotiations with representatives of the European Union, the European Central Bank and the International Monetary Fund, on whose approval the continued flow of Greece's vital rescue loans depends. Without the bailout, Greece would not have enough money to pay off a big bond redemption next month, triggering a default that could send shockwaves around financial markets and the global economy.

The three organizations, known as the troika, have demanded new private sector wage and pension cuts, public sector sackings and cuts in health, pension and defense spending to approve a new euro130 billion ($170 billion) bailout.

The troika's proposals have horrified unions, who held a general strike Tuesday, as Greeks have been clobbered with a spate of income cuts and drastically increased taxation over the past two years.

But Athens has minimal ground for maneuver. Without the rescue loans, the country will default on its massive debts in March, when it faces a euro14.5 billion ($19 billion) bond redemption.

Late Tuesday, Greece's private creditors signaled progress on a separate, linked agreement that would cut the country's privately held debt load by 50 percent, or some euro100 billion ($131 billion). The intention behind the writedown is to ensure that Greece's loug-term debts are sustainable.

Banks, pension and hedge funds and other private holders of devalued Greek bonds are expected to swap their current bonds for new ones worth 50 percent less than the original face value, with longer repayment terms and a lower interest rate.

Representatives of the Institute of International Finance, which has been leading the talks for private bondholders, had a "constructive meeting" with Papademos, IIF spokesman Frank Vogl said.

Papademos and Finance Minister Evangelos Venizelos will soon brief the rest of the 17-nation eurozone on the proposed deal, Vogl said — a sign the bond-swap deal could be close.

The meeting of eurozone finance ministers could happen as soon as Thursday in Brussels, according to officials, although that will depend on finding agreement in Athens on the terms of the second bailout.

Greece has been kept solvent since May 2010 by payments from a euro110 billion ($145 billion) international rescue loan package. When it became clear the money would not be enough, a second bailout was decided last October.

The Greek government has already accepted that it must cut 15,000 state jobs in 2012 to get the new bailout, and reduce 2012 spending by a further euro3.3 billion ($4.3 billion) as well as wage costs in the private sector and recapitalize banks without nationalizing them.

But disagreement remains on the extent of those cuts between party officials, who are set to face national elections in late April — after the debt deals have been sealed and implemented.

The majority Socialists, main rival conservatives and the small right-wing LAOS party are also at odds over when the elections should be held.

The Socialists, who handed over power to Papademos in November and are trailing badly in opinion polls, want him to stay through parliament's four-year term that ends in late 2013. But conservatives, buoyed by their lead in opinion polls, are demanding an April vote according to plan.

LAOS leader George Karatazferis criticized eurozone heavyweights France and Germany on Tuesday, saying they were carrying out an "aggressive humiliation of Greece" with their demands for new austerity measures.

A disorderly bankruptcy by Greece would likely lead to its exit from the eurozone, a situation that European officials have insisted is impossible because it would hurt other weak countries like Portugal, Ireland and Italy.

German Chancellor Angela Merkel also argued strongly against the prospect.

"The euro is not just an economic project, it is also a political project — and I am not going to participate in pushing Greece out of the euro," she said late Tuesday. "It would have incalculable consequences."


Derek Gatopoulos in Athens, Gabriele Steinhauser in Brussels and Geir Moulson in Berlin contributed to this report.

By Salon Staff

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