Greek party leaders seek deal as bankruptcy looms

 

Nicholas Paphitis
Tuesday 07 February 2012 13:05
Comments

Greek party leaders will meet today to seek a long-delayed agreement on harsh cutbacks demanded to avoid looming bankruptcy, amid intense pressure from its bailout creditors to reach a deal, a general strike disrupting public services and thousands of protesters taking to the streets of Athens.

Heads of the three parties backing the interim government will confer with Prime Minister Lucas Papademos on new salary cuts and job losses, which Greece's eurozone partners and the International Monetary Fund are demanding to keep the country's vital rescue loans flowing.

A general strike against the impending cutbacks stopped train and ferry services nationwide, while many schools and banks were closed and state hospitals worked on skeleton staff.

Riot police fired tear gas to repel hundreds of anti-austerity protesters trying to break a cordon outside Parliament, but no arrests or injuries were reported and the clashes quickly subsided.

Police said some 10,000 people took part in an otherwise peaceful march to Parliament under heavy rain, organized by the country's two biggest labor unions. A separate demonstration by about 10,000 Communist unionists ended without incident.

On Monday, Prime Minister Lucas Papademos' government caved in to demands to cut civil service jobs, announcing 15,000 positions would go this year, out of a total 750,000. The decision breaks a major taboo, as state jobs had been protected for more than a century to prevent political purges by governments seeking to appoint their supporters.

Athens must placate its creditors to clinch a €130 billion bailout deal from the eurozone and the IMF and avoid a March default on its bond repayments.

Among the measures the EU and IMF are pressing Greece for is a cut in the €750 minimum wage to help boost the country's competitiveness. This reduction would have a knock-on effect in the private sector — because private companies also base their salaries on the minimum wage — and even unemployment benefits. Unions and employers' federations alike have deplored the measure as unfair and unnecessary.

"It is clear that there is a lot of pressure being put on the country. A lot of pressure is being placed on the Greek people," Finance Minister Evangelos Venizelos said during a break in talks with EU-IMF debt inspectors late Monday.

He called on coalition parties to work more closely together.

"To save Greece ... will involve a huge social cost and sacrifices," Venizelos said. "On the other hand, if the negotiations fail, bankruptcy will lead to even greater sacrifices."

"No one is as strong as Hercules on his own to face the Lernaean Hydra," a swamp monster in Greek mythology, he said. "We must all, together, fight this battle, without petty party motives and slick moves.

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

As well as the austerity measures, the bailout also depends on separate talks with banks and other private bondholders to forgive €100 billion in Greek debt. The private investors have been locked in negotiations over swapping their current debt for a cash payment and new bonds worth 50 percent less than the original face value, with longer repayment terms and a lower interest rate.

Greek government officials say they expect private investors to take losses of an estimated 70 percent on the value of their bonds.

The EU-IMF bailout will also provide an estimated €40 billion to protect Greek banks from immediate collapse. Domestic lenders and pension funds hold some 34 percent of the country's privately-owned debt.

However, the bailout has to be secured for the deal with private investors to go ahead as about €30 billion from the bailout will be used as the cash payment in the bond swap deal.

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.

But on Tuesday, the EU commissioner Neelie Kroes, in charge of the bloc's digital policies, said Greece's exit wouldn't be a disaster.

Kroes told Dutch newspaper De Volkskrant that "It's always said: if you let one nation go, or ask one to leave, the entire structure will collapse. But that is just not true."

Greece's coalition party leaders held a first key meeting on the austerity measures on Sunday, and postponed a second round of talks by a day so Papademos could complete negotiations with EU-IMF debt inspectors that ended early Tuesday.

The leaders have already agreed to cut 2012 spending by 1.5 percent of gross domestic product — about €3.3 billion — improve competitiveness by slashing wages and non-wage costs, and re-capitalize banks without nationalizing them. But the details remain to be worked out.

Creditors are also demanding spending cuts in defense, health and social security.

European Commission spokesman Amadeu Altafaj Tardio said Monday that Greece was already "beyond the deadline" to end the talks.

Also Monday German Chancellor Angela Merkel warned that "time is pressing," and "something has to happen quickly."

While Greece remains cut off from international bond markets — where it would have to pay interest of about 35 per cent to sell 10-year issues — it maintains a market presence through regular short-term debt sales.

On Tuesday, the public debt management agency said Greek borrowing costs dropped slightly as the country raised €812 million in an auction of 26-week treasury bills. The coupon was 4.86 percent, compared to 4.90 per cent in a similar auction last month, while the auction was 2.72 times oversubscribed.

AP

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Please enter a valid email
Please enter a valid email
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Must be at least 6 characters, include an upper and lower case character and a number
Please enter your first name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
Please enter your last name
Special characters aren’t allowed
Please enter a name between 1 and 40 characters
You must be over 18 years old to register
You must be over 18 years old to register
Opt-out-policy
You can opt-out at any time by signing in to your account to manage your preferences. Each email has a link to unsubscribe.

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Join our new commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged in