Greeks to brief eurozone on tentative debt deal
A spokesman for Greece’s private creditors says Greek Premier Lucas Papademos will soon tell eurozone finance ministers the contents of a deal to reduce the country’s massive debt.
Frank Vogl said represen-tatives of the Institute of International Finance, which has been leading the talks for private bondholders, had a “constructive meeting” with Papademos and Finance Minister Evangelos Venizelos last night.
The fact that the Greek government will now brief the rest of the 17-nation eurozone on the deal is a sign that they believe it is now almost done. The deal aims to reduce Greece’s debt by some ¤100 billion ($11.4 trillion) and is key for Greece to secure a second bailout and avoid bankruptcy.
Pressure from home and abroad is intensifying on Greece’s political leaders as they met yesterday to decide on harsh cutbacks to secure a ¤130-billion bailout and avoid a potentially disastrous default.
Heads of the three parties backing the interim government confered with Prime Minister Lucas Papademos on new salary cuts and job losses, which other countries that also use the euro and the International Monetary Fund want in exchange for keeping vital rescue loans flowing.
A general strike against the impending cutbacks stopped train and ferry services, 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 who burned a German flag and tried to break a cordon outside Parliament, chanting “Nazis out!”.
Ahead of last night’s meeting, the Greek coalition parties were to be handed a draft agreement of the austerity deal, a senior government official and a ranking coalition party member told the Associated Press, but gave no
further details.
“The document will be given to political party leaders in the afternoon; it isn’t yet finalised, it’s still being drafted,” the government official said.
They asked not to be named, citing the sensitive nature of the negotiations.
Athens must placate its creditors to clinch the bailout deal from the eurozone and the IMF and avoid a March default on its bond repayments.
On Monday, 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.
Among the measures the European Union and IMF are pressing Greece for is a cut in the ¤¤750 monthly minimum wage to help boost competi-tiveness. This reduction would have a knock-on effect in the private sector — because private companies base their salaries on the minimum wage — and even unemployment benefits.
The leaders have already agreed to cut 2012 spending by 1.5 per cent of gross domestic product — about ¤¤3.3 billion — improve competitiveness by slashing wages and non-wage costs, and re-capitalise banks without nationalising them. The details remain to be worked out.
Creditors are also demanding spending cuts in defence, health and social security.
Unions and employers’ federations alike have deplored the measures as unfair and unnecessary. Police said yesterday that some 10,000 people took part in an otherwise peaceful union-organised march against the austerity programme. A separate demonstration by about 10,000 Communist unionists ended without incident.
“They are committing a crime against the country. They are driving wage-earners into poverty and wiping out pensioners and the unemployed,” said Vangelis Moutafis, a senior member of Greece’s largest union, the GSEE.
“They are selling off state assets for nothing. This cannot continue. This crime must be stopped, right now.”
The European Trade Union Confederation described the proposed new cutbacks as “simply not defensible”.
“Greek workers and citizens have been pushed to the limit of what is acceptable in terms of restrictions,” ETUC General Secretary Bernadette Segol said. “Labour law is being flouted and men and women are being crushed in the process.”
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 bonds for a cash payment and new bonds worth 50 per cent less than the original face value, with longer repayment terms and a lower interest rate.
Greek officials estimate private investors will take losses of about 70 per cent on the value of their bonds. Greek lenders and pension funds hold some 34 per cent of the country’s privately owned debt.
The EU-IMF bailout will also give Athens ¤¤40 billion to buy shares in the Greek banks, thereby protecting them from immediate collapse.
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 to pay investors 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 yesterday, 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.”
She said Greece’s austerity drive has so far left much to be desired.
“This is why the troika (IMF, EU and European Central Bank) is back in Greece again, reporting for the umpteenth time that Greece is not living up to its promises: too few savings, too few reforms,” Kroes said. “It’s becoming a Greek mantra: “We cannot. We won’t’!”
EU Commission President Jose Manuel Barroso quickly stepped in to counter the remarks.
“We are in a very decisive moment regarding the future of Greece and the future of the euro. We want Greece in the euro,” he said.
“The costs of a default by Greece, the costs of a potential exit of Greece from the euro would be a lot higher than the costs of continuing to support Greece.”
Greek Finance Minister Evangelos Venizelos acknowledged that the demands on his country were tough, but on Monday 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.”
In exchange for the first rescue loans, Greece has already imposed a raft of austerity measures meant to contain bloated budget deficits after years of profligate government spending. Pension and salary cuts were followed by increased retirement ages and drastically higher taxation — including a deeply resented new property tax that punishes non-paying households by cutting off their electricity supply.
Even then, the 2011 budget deficit is set to exceed targets, while tax revenues are constantly lagging as Greek authorities have made little headway in fighting rampant tax evasion and inefficient tax collection.