Greek Party Leaders Prepare For Crucial Debt Talks


Salon Staff
February 8, 2012 6:09PM (UTC)

ATHENS, Greece (AP) — Greek coalition leaders are preparing their responses to a draft deal on harsh cutbacks creditors are demanding to approve a €130 billion ($170 billion) bailout that will help the country avoid a looming bankruptcy next month.

Their decisions will be announced at a meeting with Prime Minister Lucas Papademos, originally scheduled for 1100 GMT, but delayed until at least 1400 GMT. That will give the three coalition parties more time to study the 50-page English-language document, drawn up with the country's debt inspectors late Tuesday.

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The coalition talks have been postponed over the last 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 payment next month, triggering a default that risks sending shockwaves throughout financial markets and the global economy.

"We face crucial decisions ... that will determine the country's course in coming years," Deputy Finance Minister Philippos Sachinidis told Parliament. "These days are among the most crucial of our post-World War II history."

The three organizations, known collectively as the "troika", have demanded further measures to improve Greece's competitiveness and economic stability — including new private sector wage and pension cuts, public sector layoffs and cuts in health, pension and defense spending — before they sign off on the new €130 billion ($170 billion) bailout.

The troika's proposals have horrified unions, who held a general strike Tuesday. Greeks have already been hit with a spate of salary cuts and drastically increased taxation over the past two years, amid record-high unemployment and a five-year recession.

Labor Minister Giorgos Koutroumanis told Parliament last week that a demanded reduction in the €751 ($985) monthly minimum wage would quicken the Greek economy's contraction and hit the revenues of struggling pension funds that have already lost €20 billion ($26 billion) since 2009.

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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 €14.5 billion ($19 billion) bond redemption.

Stocks advanced Wednesday, while the euro was trading near two-month highs, as global markets were hopeful a deal would be struck in Athens. Greek shares were 0.9 percent up in afternoon trading.

"We are finally approaching the endgame of the Greek talks," said Gary Jenkins, managing director at Swordfish Research. "Ultimately it is difficult to see how they can do anything other than agree a deal. After all, the alternative is a disorderly default which could lead to a much deeper economic depression and potential civil unrest."

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 €100 billion ($131 billion). The intention behind the writedown is to ensure that Greece's long-term debts are sustainable. Banks, pension and hedge funds and other private sector holders of Greek debt 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. They are also expected to get a €30 billion payment as part of the bond swap deal.

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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 an agreement in Athens on the terms of the second bailout.

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If political leaders accept the demanded austerity, Greek officials say a cabinet meeting will approve the deal, likely later Wednesday. Parliament will then have to vote on the deal over the weekend.

Ratification should prove simple provided all three coalition partners back the deal, as they control a combined 252 of Parliament's 300 seats — enough to carry the vote even if there is a limited backbencher rebellion.

Greece has been kept solvent since May 2010 by payments from a €110 billion ($145 billion) international rescue loan package. When it became clear the money would not be enough, a second bailout was decided last October.

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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 €3.3 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.

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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."

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


Salon Staff

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