Greek leaders blow chance of quick EU bailout approval

15.02.2012 09:42

(Reuters) - Euro zone finance ministers have dropped plans for a face-to-face meeting on Wednesday on Greece's new international bailout, saying party leaders in Athens failed to provide the required commitment to reform.

With the European Union's patience at breaking point, ministers downgraded the talks to a telephone conference call, almost certainly killing off any chance they would approve a 130 billion euro ($170 billion) bailout on Wednesday which Greece needs by next month to avoid a messy bankruptcy.

Ministers in the Eurogroup said Greece had failed to say how it would fill a 325 million euro gap in budget cuts promised for 2012 and to persuade all party leaders to sign a commitment to implement austerity measures after an election expected in April.

A government source said late on Tuesday that Antonis Samaras, who will probably be the next prime minister, would sign the commitment on Wednesday morning - again running up against a deadline and infuriating EU leaders.

Samaras has criticized the measures, which parliament passed early on Monday as rioters wrecked buildings across central Athens. He says the cuts could plunge the country, already in its fifth year of recession, into an even bigger slump.

When parliament debated the austerity package on Sunday he indicated that he would try to renegotiate the terms of the bailout, increasing doubt in the minds of European leaders.

"So far Samaras has not given a letter of commitment and this is a problem," a source familiar with the bailout negotiations told Reuters on condition of anonymity. Samaras's New Democracy party declined to comment.

Time is running out for Greece as it faces a chaotic default if it cannot meet 14.5 billion euros in debt repayments due on March 20 and its brinkmanship has forced some EU leaders to suggest Athens should leave the euro zone currency union.

But European Council President Herman Van Rompuy said in Beijing leaders would do all they could to keep the 17 country euro zone together "because at the heart of the project, is the peace, prosperity and democracy in the European Union."

"So don't underestimate the strong political will to defend the euro zone and that's the message we want to convey," he said.

In China with European Commission President Jose Manuel Barroso to try to secure investment for the ailing union, the two leaders presented a vision of a stable bloc, committed to protecting its members.

China said it would not cut the share of euros in its reserves, maintaining its stance. Any bigger role in solving the debt crisis would be via the International Monetary Fund and European Financial Stability Fund, or EFSF, China's central bank governor, Zhou Xiaochuan, said in a speech at a university.

LATE MEETING

Greece's cabinet negotiated late into Tuesday on solving the problem of the 325 million euro hole in the 3.3 billion euros of extra budget cuts the government has promised for this year.

The EU and IMF want Greece to account for every cent of budget cuts before they approve the rescue, which includes a bond swap, cutting the real value of private sector investors' bond holdings by some 70 percent.

There were signs of encouragement. The European Central Bank has decided to distribute profits from Greek bonds to member states, which they could decide to pass on to Athens as part of the debt deal, Governing Council member Luc Coene said.

But Greece's downward economic spiral has accelerated. Data on Tuesday showed that economy shrank seven percent in the fourth quarter of last year, even more than the five percent contraction of the third quarter.

Greece is well on its way to suffering one of the biggest slumps of modern history. Gross domestic product has contracted 16 percent from its peak and the austerity will make that worse.

Prime Minister Lucas Papademos has said that failure to back the bailout would consign Greece to economic catastrophe.

But with many Greeks suffering huge cuts in their living standards and young people burning and wrecking almost 100 Athens buildings in one night on Sunday, some people believe the catastrophe is already under way.

"On the current path - which is not sustainable in my view - we may very well see Greek GDP go down 25-30 percent, which would be historically unprecedented. It's a disastrous crisis for them," said Uri Dadush, at the Carnegie Endowment think tank in Washington.

That would put Greece in the same league as the United States, where the economy shrank 29 percent during the Great Depression.

"They're suffering. It's nasty," said Mark Weisbrot, co-director of the Center for Economic and Policy Research, another Washington think tank.

"If you could say with a reasonable probability that the worst was over, then that would be different. But you can't say that. They're in for a long nightmare."

($1 = 0.7616 euros)

(Additional reporting by Renee Maltezou in Athens, Alan Wheatley and Scott Barber in London, Aileen Wang in Beijing; Writing by David Stamp and Elizabeth Piper; editing by Timothy Pearce)

Euro zone puts Greek plan under microscope
(Reuters) - Greece's bid for a new bailout got close inspection on Tuesday from euro zone officials poring over the details of Athens' budget to decide whether it has met conditions to get the money.

Even if it passes muster, the second round of funds may only be paid out once Greece proves it has taken action.

Senior euro zone finance ministry and treasury officials - collectively known as the Eurogroup Working Group - have to decide if euro zone finance ministers can sign off on financing program when they meet in Brussels on Wednesday.

If they do, and ministers give their approval, it will effectively mean that Greece will have received a total of 240 billion euros in emergency loans and other support from the European Union and International Monetary Fund over the past two years - equivalent to 110 percent of annual output.

The first package, worth 110 billion euros, was agreed in May 2010. A spokesman for the head of the Eurogroup said euro zone finance ministers would meet from 1700 GMT on Wednesday.

"I am confident that - as far as I know the details - Greece will get more help," Austrian Finance Minister Maria Fekter told reporters on Tuesday.

The devil, as always, is in the detail.

After an emergency meeting last Thursday, euro zone finance ministers said they would sign off on a new program if Greece could find a further 325 million euros of spending cuts, secure parliamentary approval for the overall package, and get the leaders of its major political parties to sign up.

Since then, parliament has voted in favour and talks are going on over finding extra budget cuts, with sources saying there may be room to move on the defense budget.

But not all party leaders have yet committed and some - in particular Antonis Samaras, leader of the conservative New Democracy party, which is ahead in polls - are reluctant to do so with elections expected in April.

One euro zone official with knowledge of the talks said he expected the Greek leaders' approval to be forthcoming.

"The vote in parliament took place and the 325 million euro of savings has apparently been agreed too. As for the letter - we are told this will be no problem at all," the official said.

STEP BY STEP

If euro zone ministers give their approval on Wednesday, it should pave the way for Greece to restructure around 200 billion euros of privately held debt, with the exact terms of a bond swap to be announced after the ministers' meeting.

At the moment, private investors look set to lose up to 70 percent of the net present value of their Greek bond holdings, which will cut Athens' debts by 100 billion euros, from around 350 billion euros currently.

By comparison, the total value of goods and services produced by Greece last year was 215 billion euros, down 6.8 billion euros on the year before.

The private sector debt restructuring, which has taken nearly eight months to negotiate, will be made possible thanks to 30 billion euros of funding from the euro zone's bailout fund, the European Financial Stability Facility.

If all Greece's commitments are in place and the bond swap goes ahead without complications, the aim is to bring Athens' debts down to 120 percent of GDP by 2020.

TRUSTING GREECE

The IMF, European Commission and European Central Bank, the troika of lenders overseeing Greece, must decide if that target is going to be hit, and if not, what further debt reduction measures can be taken.

It may be necessary for official sector holders of Greek bonds - the ECB and other euro zone national central banks - to forgo profits on the Greek government bonds they hold, thereby providing further relief to Athens. That issue is also expected to be discussed by ministers and ECB officials on Wednesday.

Because of a long history of missed targets, Greece will not see any new cash from the second program until the end of February, by when it is expected to have implemented a series of steps the EU calls "prior actions."

These constitute 11 fiscal, structural and financial reforms to government finances, labor markets and the social security program, as well as steps to overhaul the banking sector.

"There will be no disbursement without implementation," the chairman of euro zone finance ministers, Jean-Claude Juncker, said last Thursday, making it clear that the EU is not prepared to take a chance on Greece meeting its obligations.

(Additional reporting by Mike Shields in Vienna and George Georgiopoulos in Athens. Editing by Jeremy Gaunt.)

Greek conservative leader yet to sign austerity pledge: source
(Reuters) - Greek conservative party leader Antonis Samaras has not yet signed a written commitment to the country's international lenders on implementing an austerity package, a source close to negotiations on securing a new EU/IMF bailout said on Tuesday.

"So far Samaras has not given a letter of commitment and this is a problem," the source told Reuters on condition of anonymity.

His New Democracy party declined comment.

A separate source at the PASOK socialist party said its leader, George Papandreou, had already provided a signed undertaking to support the measures passed by parliament early on Monday.

(Reporting by Renee Maltezou; editing by David Stamp)

Eurozone ministers eye February 20 meeting on Greece
(Reuters) - Eurozone finance ministers abandoned a plan to gather on Wednesday to discuss aid for Greece and instead decided to talk by phone as they continued to grapple with unresolved problems over a financial rescue plan.

Greece needs a second package of financial aid to save it from disorderly default.

But its political leaders have so far failed to deliver sufficient commitments to economic reform, Eurogroup President Jean-Claude Juncker said in a statement on Tuesday.

"It has appeared that further technical work between Greece and the troika is needed in a number of areas, including the closure of the fiscal gap of 325 million euros in 2012 and the debt sustainability analysis," Juncker said in a statement.

"Furthermore, I did not yet receive the required political assurances from the leaders of the Greek coalition parties on the implementation of the program," he said.

The delay, which is likely to worry investors who had expected a deal on Wednesday, is the latest setback in difficult negotiations to prop up Greece's finances.

After months of negotiations, private creditors agreed to take losses on their Greek bonds but only in conjunction with a rescue package for Greece.

But the Greek parliament's approval of an austerity bill on Monday resulted in violence throughout the country, and opposition politicians - who might end up in power after elections in April - have said they may renegotiate how reform is implemented.

The Greek government is attempting to find 325 million euros ($427 million) in budget cuts to satisfy euro zone finance ministers.

Eurozone ministers had been expected to meet in person on Wednesday in Brussels to give their initial approval to the package, as well as agree to launch a bond swap with private creditors to reduce Athens' debt burden.

The delay pushes back a decision until at least Monday, February 20, when ministers have scheduled their next meeting.

The further technical work remaining needs to be carried out by the troika that monitors Greece, consisting of the European Central Bank, European Commission and International Monetary Fund.

The savings of 325 million euros are part of reforms that will involve 3.3 billion euros of cuts in wages, pensions and jobs endorsed by parliament on Sunday. During the vote rioters torched buildings in Athens and fought running battles with police.

A written commitment from Greece's main political leaders is crucial to winning the blessing of Germany and others for a 130 billion euro package of aid that Athens needs to be in place in time for a 14.5 billion euro bond redemption repayment on March 20.

Without it, euro zone countries will not launch a program of aid, which is also needed to pay the private owners of Greek bonds to encourage them to participate in a bond swap to cut Athens' debt burden.

Frustration with Greece peaked in recent weeks as politicians began preparing for national elections that could come in April.

This especially worries countries such as Germany, which fears that Greece's leaders will abandon the pledges they have made to reform the economy as soon as they have received the financial aid they need.

(Reporting By John O'Donnell.; Additional reporting by Luke Baker and Martin Bratislava.; Editing By Sebastian Moffett and Myra MacDonald)

Europe left torn between outrage and anxiety on Greece
(Reuters) - Europe's left is torn between outrage and anxiety over drastic cuts in living standards and working conditions being imposed on Greeks by the European Union and the International Monetary Fund.

Indignation at sweeping pay and pension reductions and public sector job cuts dictated by official creditors in return for a second bailout of the debt-ridden euro zone state is strongest in south European countries that fear a similar rod.

Yet there is scant sympathy from centre-left politicians and labor leaders in northern Europe, where voters are more worried at the potential cost of bailouts, nor in former communist central Europe, where people are more inured to hardship.

"What if we all became Greeks?" left-wing French daily Liberation asked on Monday. "Is what is being imposed today on this pressured and humiliated country a foretaste of what will one day be prescribed for Italy, Portugal, and why not France?"

A planned 22 percent cut in the Greek minimum wage, with a 32 percent cut for workers under age 25, is among the most radical steps backwards inflicted in peacetime in modern Europe. Only Latvia has endured a similar EU/IMF-mandated "internal devaluation" cutting living standards.

Public sector pay in Ireland has fallen on average by 15.9 percent since 2009 due to wage cuts and a pension levy, but a 12 percent cut in the minimum wage agreed with lenders was reversed after the government found savings elsewhere.

The leader of Portugal's largest trade union, Armenio Carlos of the CGTP, praised Greek workers' "heroic resistance" against austerity measures and warned that his own country could face a similar social explosion.

"If the results in Greece were disastrous, without a doubt they will be no different here," Carlos said last week.

French Socialist politician Segolene Royal, the defeated presidential candidate in 2007, voiced outrage at the way austerity was targeting the poorest Greeks while the rich were still able to evade taxes with impunity.

Accusing European leaders of "cowardice," she singled out European Commission President Jose Manuel Barroso for criticism.

"Athens is burning ... Where is Mr Barroso? - the ultra-liberal politician chosen to head the Commission - that was a very grave error. Where is the Council of Ministers? What is the European parliament doing?" Royal asked in a radio interview.

MUTED REACTION

Yet the reaction of the mainstream European left has been mostly muted, partly due to exasperation among ordinary citizens in wealthier countries at having to rescue Greece twice, but also because many centre-left parties have been associated with the austerity measures.

In Greece and Portugal, Socialist governments requested the original EU/IMF bailouts and supported the public spending cuts and painful pension reforms required as part of their fiscal adjustment programs.

Ireland's centre-left Labour party is a junior partner in the coalition government that is enforcing the country's austerity plan, which is showing first signs of success.

In Italy and Spain, left-wing parties backed budget cuts, raising the retirement age and freezes or reductions in public sector pay as part of austerity programs enacted to save those countries from being shut out of capital markets.

Italy's Democratic Party, the largest centre-left political movement, has supported technocrat Prime Minister Mario Monti's sweeping pension and structural reforms and austerity measures despite misgivings about the impact on growth and employment.

That makes the left somewhat schizophrenic about what is happening in Greece.

"The Greek riots are just the tip of the iceberg of a failed policy that focuses totally on public accounts and ignores the real economic issues of growth and jobs," said Stefano Fassina, the party's top economic adviser.

"The conservative government in Berlin is primarily responsible for imposing this cure. All of Europe is in recession because of it," Fassina said.

Germany's opposition Social Democrats (SPD) advocate a different policy mix to revive growth and jobs but they are cautious about challenging Chancellor Angela Merkel's tough line on Greece, which polls show is widely popular.

"A country that is weakened again and again ultimately won't have the power to service its debt," said Andrea Nahles, the SPD's general secretary. "This is exactly what is happening now in Greece. It is a vicious circle that must be broken."

Finland's centre-left Social Democrats and the Left Alliance are part of a coalition government that has insisted on strict conditionality and collateral in return for loans to Greece.

Given popular frustration over bailouts it would be political suicide to sound too sympathetic towards Greek workers. Instead, they are criticizing job cuts by Nokia and others in Finland.

The European Trade Union Confederation, the umbrella group for organized labour around the continent, has had little success in trying to mobilize workers Europe-wide against austerity. Apart from one big demonstration in Brussels, protests have largely been confined to national issues.

ETUC Secretary General Bernadette Segol criticized the so-called troika of European Commission, European Central Bank and IMF for imposing ever deeper cuts on Greece and said she feared "a big clash and contagion" if Athens eventually defaulted.

"It's not the right course, it's not going to lead to a solution for Greece and the Greek people," Segol said.

There is little solidarity with Greece in central European countries that lived through a harsh transition from communism to the market economy in the 1990s and are still poorer per capita than the Greeks today.

Slovakia refused to contribute to the first Greek bailout for that reason. A Slovak official noted that even after the planned minimum wage cut, Greece's would still be higher than Spain's, which has not had to request assistance, and far higher than Portugal's.

In Lithuania, where a centre-right government cut wages and benefits during a 2009-2010 financial crisis, the leader of the main centre-left party said Greeks had spent themselves into this mess and had to take their medicine now.

"Greece has no escape but to implement strict austerity measures or to face bankruptcy. It can't save itself without outside assistance," Algirdas Butkevicius, leader of the Lithuanian Social Democrat Party, said.

"Maybe it's not good to cut the minimum wage, but Greece's spending on pensions has been very generous compared with the rest of Europe," he said.