Greek minister heads to Brussels with incomplete bailout deal

10.02.2012 13:01

The Economic Times: ATHENS: Greek leaders failed on Thursday to agree on reforms and austerity measures, the price of a bailout to avoid a messy default, forcing Finance Minister Evangelos Venizelos to go to the country's financial backers with an incomplete deal.

Greece's partners in the European Union and the International Monetary Fund are increasingly exasperated by a lack of agreement on the measures they demand in return for

a 130 billion euro ($172 billion) bailout and time is running out for the country before a major March 20 bond redemption.

Euro zone officials say the full package must be agreed with Greece and approved by the EU, European Central Bank and IMF before Feb. 15 so legal paperwork can be completed in time to avoid a chaotic default that could threaten global economic recovery.

But after all-night talks with leaders of the three parties in the Greek coalition and with chief EU and IMF inspectors, Venizelos emerged shortly before dawn to say that one issue was unresolved.

"I am leaving for Brussels in a short while with the hope that the Eurogroup meeting will be held, and a positive decision on the new programme will be taken," he told reporters.

"The financial survival of the country in the coming years depends on the new programme ... It is time of responsibility for everyone."

Venizelos had hoped to present to his fellow euro zone finance ministers in Brussels a fully-fledged deal on a new bailout plan, including commitment for 3.3 billion euros in budget cuts this year.

A spokesman for the socialist PASOK party said disagreement over pension reform had been the stumbling block.

A senior government official said the party chiefs had agreed on how to make about 90 percent of the promised savings, leaving a relatively small hole in the calculations.

Athens had to close this gap quickly, said the official. "Greece has another 15 days to specify fiscal savings worth 300 million euros," he said on condition of anonymity.

VICIOUS CIRCLE

Earlier, Prime Minister Lucas Papademos said he hoped the party leaders could sort out their differences before the euro zone finance ministers meet at 1700 GMT.

Newspaper editorials criticised the harshness of the austerity measures demanded by Greece's lenders, but said there was no other option but to give in and agree.

"The memorandum seems, and in fact is, heavy and unbearable for the majority of the Greek people but unfortunately it is the only choice so that the country is not led over the cliff," financial daily Imerisia said.

Greece has been falling deeper into recession since it was rescued by a first bailout deal in May 2010, with unemployment reaching record highs of over 18 percent.

"The measures that are being imposed on Greeks so as to ensure the restructuring of the debt have the same, unsuccessful recipe: more cuts, which will cause deeper recession and will create the need for new cuts. A vicious circle," centre-left daily Ta Nea wrote in the first-page editorial.

"Unfortunately, we do not have the 'No' choice to this policy. We either reduce the debt and stay in the eurozone, even if we become much poorer, or we default. There is not a third choice."

Prospects for a long-awaited deal on Greece's new bailout appeared to brighten when the finance ministers' chairman Jean-Claude Juncker called the Brussels meeting - which IMF managing director Christine Lagarde will also attend - to examine the bailout and accompanying bond swap.

On offer from the EU and IMF is a package involving the new rescue funds and a bond swap with private creditors to ease the nation's large debt burden.

Athens is also urging the ECB to forego profits on its Greek bond holdings in what could raise 12 billion euros or more. The ECB's 23-member Governing Council, which meets on Thursday, has yet to agree a position.

RELUCTANT LEADERS

For the bailout, Athens must accept conditions requiring big cuts in many Greeks' living standards. The smallest member of the coalition, the far-right LAOS party, was particularly uncomfortable with the measures.

"The president of LAOS George Karatzaferis expressed serious reservations," said Papademos, a former central banker brought in when a PASOK government collapsed last November.

Panos Beglitis, spokesman for PASOK which is in the coalition along with LAOS and the conservative New Democracy party, said they had disagreed over the level of cuts to supplementary pensions needed to safeguard the pension system.

However, Beglitis told reporters the leaders had agreed to cut the minimum wage by 22 percent as part of efforts to make the economy more competitive. Plans to scrap holiday bonuses paid to private sector workers had been dropped.

Two sources close to the Athens talks said the government would promise spending cuts and tax rises totalling 13 billion euros from 2012 to 2015, almost double the seven billion it originally pledged.

International lenders are demanding that the party leaders commit themselves in writing to implement the programme of pay and pension cuts, structural and administrative reforms.

However, the leaders have been loath to accept the lenders' tough conditions, which are certain to be unpopular with voters. They face parliamentary elections possibly as early as April.

In Greece and abroad, frustration grows over failure to implement structural reforms and tackle the roots of the crisis, including a widespread tax evasion.

"Nothing has been done. They have not cracked down on tax evasion, they have not done anything on the reform of the country. They closed their ears and moved in an one way road," said Fotis Kouvelis, head of the Democratic Left party.

Kouvelis, whose small leftist opposition party has jumped to the second place in recent opinion polls, told Skai television he would vote against the EU/IMF plan, which he said asks for "unacceptable" measures. The opposition does not need to approve the deal for it to go ahead.

Other elements of the deal have been gradually slotting into place, including the bond swap with private creditors to ease Greece's debt burden by reducing the value of government bonds held by banks and insurers.

The new bonds would have an average interest rate of around 3.5 percent, said state NET TV, with creditors having to swallow a 70 percent cut in the value of their debt holdings.

Ratings agency Standard & Poor's said Greece would probably fail to achieve manageable debt levels if it relied on the 70 percent reduction in the value of bonds held by private creditors, putting the onus on the ECB to take losses too.

($1 = 0.7545 euros)