Strike Looms As Greek Party Leaders Push For Deal on Reforms

06.02.2012 11:54

WSJ: ATHENS—Signs of popular protest loomed over Greece's political leaders as they raced to agree on painful reforms, including private-sector pay cuts, needed to win a new bailout agreement to keep the country from defaulting on its debts next month.
Unions representing both Greece's public sector and private industry have cheduled a nationwide strike for Tuesday, as the coalition of parties backing interim Prime Minister Lucas Papademos faced bitter choices about either slashing incomes or losing a chance at a second bailout from international lenders.

The political leaders appeared determined to reach an agreement on needed cutbacks on Monday, after a weekend of difficult talks to comply with demands from the European Union and International Monetary Fund for deep cuts. Opponents fear these will dramatically erode the standard of living and sink Greece deeper into recession.

Demands for cuts to the country's public-sector payroll were also on the table. The international creditors have asked for job cuts in the police force and the armed forces, and there are even proposals to lay off teachers that work on temporary contracts, as part of the targeted 150,000 civil servants that will have to be made redundant by 2015.
After a meeting lasting more than five hours on Sunday, Mr. Papademos said the political leaders agreed on some of the basic points of the international lenders' demands, including spending cuts equal to 1.5% of gross domestic product in 2012. They also agreed to reforms that would cut supplemental pension benefits to Greek workers, and to boost competitiveness by adopting measures in a range of fields.

But in separate remarks, the socialist and conservative parties indicated they were still far from an agreement on proposed wage cuts in the private sector.

The Socialists also insisted on giving the state voting rights as part of a bank-recapitalization plan.

Antonis Samaras, leader of the main opposition New Democracy party, said creditors "are asking for more recession" from Greece. "I am fighting in every way to avoid this," he told reporters Sunday.

Georgios Karatzaferis, head of Laos, a right-wing conservative party, said he "will not contribute to a revolutionary explosion arising from impoverishment."

Panos Beglitis, spokesman for the Socialist Party, also known as Pasok, said the two most difficult issues are the wage cuts and a plan to recapitalize Greece's banks, which face billions of euros of losses from the planned €100 billion ($131.59 billion) debt write down by Greece's private-sector creditors.

"The two big issues are the labor reforms and the banks," he said. "[Socialist party leader George] Papandreou insists on the use of common shares with voting rights."

Mr. Papademos also has been in talks with representatives from the European Commission, IMF and European Central Bank—also known as the troika—while the party leaders were holding separate meetings with their associates.

For the past two weeks, Greece has been locked in difficult negotiations with the international creditors on the loan terms as the two sides work to overcome key differences on a range of unpopular reforms.

As a condition for further aid, Greece's official lenders have demanded ross-party support for the reform and austerity program, to ensure there is no backsliding after a new government takes office later this spring.

Despite growing discontent among Greece's European partners over its handling of the crisis, the country's political leaders are reluctant to sign off on the reforms, as they are seen as capable of sparking social upheaval.

"The prime minister's statement shows the willingness to reach a successful conclusion. But the issue of [cuts to private-sector] salaries is still out there and how it will be practically addressed is unknown," said a senior government official.

Greece is holding twin sets of talks with its European partners and the IMF on a new bailout after they agreed to provide the country in late October with a second bailout worth €130 billion, or around $170 billion. At the same time, Athens is also negotiating a €100 billion debt write-down plan with its private-sector creditors.

The leaders of a private-sector creditors' committee negotiating a debt write-down plan with Greece also joined talks with party chiefs at Mr. Papademos's office late Sunday.

Charles Dallara, managing director of the Institute for International Finance, along with Jean Lemierre, a senior adviser to BNP Paribas SA, left soon after the meeting ended, without making any statements.

The talks with the private-sector creditors are said to be very close to being finalized, after they agreed on lower interest rates on the new bonds Greece will offer after a proceeding with a planned 50% writedown on its existing debts. But there are concerns in other European capitals and within the IMF that the debt restructuring doesn't go far enough in reducing Greece's debt burden.

The focus in Athens remained on the troika's demand that Greece cut private-sector wages as a step toward boosting competitiveness and jump-starting its economy. Greek government officials say the reduction in wages being sought by the troika will only deepen the country's recession and widen its budget deficit, because it will reduce both tax revenues and contributions to its teetering pension funds.

Specifically, the troika has called on Greece to consider abolishing its minimum wage and to eliminate the two months of bonus pay that workers now receive under a national wage pact.

In the early hours of Monday, a senior Greek government official said the focus appears to be shifting away from cutting the bonus pay, as the troika pushes for a 20% reduction in the minimum wage and other measures to loosen rules on sectoral contracts.

The two bonus payments will probably remain in place to some extent, a Greek cabinet minister said Monday. "But there will be cuts in regular salaries in the private sector—this seems unavoidable," the minister said. Supplemental pensions also face cutbacks. "The expectation is that there will be an agreement today."

Luxembourg's Prime Minister Jean-Claude Juncker, who also heads the group of the euro-zone's 17 finance ministers, told Germany's Spiegel magazine in an interview pre-released Saturday that help for Greece won't be made at any cost.

In tough remarks, Mr. Juncker warned that should Greece fail to implement necessary reforms then it should not expect acts of solidarity "to be rendered by others."

"If we should determine that everything is going wrong in Greece, then there would not be a new program, then that would mean that in March a declaration of bankruptcy would occur," Mr. Juncker said in the interview.

—Todd Buell in Frankfurt contributed to this article.
Write to Alkman Granitsas and Costas Paris