Politicians are trying to ensure cash-strapped Greece avoids sinking into a chaotic default next month [Reuters]
Greece’s prime minister is pressing his political allies to support a rescue package in order to avoid a government default, after his finance minister warned that just hours remain to secure a deal.
Lucas Papademos called an emergency meeting after Finance Minister Evangelos Venizelos warned that the government has only until Sunday night to produce a second financing package.
Venizelos made the statement after eurozone ministers threatened to cut off funds if Greece offers no proof of reforms. He said the moment is crucial, and that Greece is “on a knife edge”.
A technocrat appointed in November, Papademos is trying to convince lenders and politicians to sign off on a 130 billion euro bailout and ensure cash-strapped Greece avoids sinking into a chaotic default when big bond redemptions come due next month.
‘Superhuman negotiations’
Papademos’s first mission on Sunday is to agree at least a preliminary deal with the “troika” of foreign lenders on reforms included in the bailout, after several days of talks failed to resolve the difficult issue of cutting wages and spending.
Greek officials have emerged increasingly despondent after each round of talks, complaining that the European Central Bank (ECB), European Union (EU) and International Monetary Fund (IMF) troika were refusing to yield on demands to cut the minimum wage level, terminate holiday bonuses and dismiss public sector workers.
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Papademos then faces an even tougher task convincing party chiefs in his own national unity coalition to back the reforms demanded by the lenders at the risk of ruining their chances at national elections expected in April.
He is expected to meet the lenders in the early afternoon before meeting with the socialist, conservative and far-right party leaders in his coalition later in the day.
The conservative New Democracy and the far-right LAOS party in particular have staunchly opposed further wage and spending cuts, arguing that risks pushing Greece into an even deeper recession and imposing more pain on struggling Greeks.
“The truth is that people are tired. They can’t put up with more austerity,” Yannis Michelakis, the New Democracy spokesman, told the Real News weekly.
LAOS leader George Karatzaferis, meanwhile, rejected what he called the “ultimatum” to strike a deal on Sunday.
Papademos’s government implored them to be more co-operative.
“We have carried out superhuman negotiations. And so political leaders must help us now,” a senior government official said, adding that the party chiefs were free to join the Sunday talks with lenders if they wanted.
Greece’s lenders, who want spending cuts worth about one per cent of GDP – or just above two billion euros – this year, have demanded all political leaders endorse the cuts irrespective of the outcome at the polls.
Markets on edge
Athens has negotiated without success for weeks on the bailout package and a debt restructuring plan, putting itself dangerously close to bankruptcy as 14.5 billion euros of debt falls due in mid-March.
The lack of agreement has kept financial markets on edge as investors worry a messy default could cause shockwaves across the financial system, triggering a credit crunch and sending the global economy back into recession.
Athens says it has made some progress by agreeing a plan to recapitalise Greek banks and details on privatisation, even if bigger issues on reform remain unresolved.
A senior banker told the Reuters news agency the recapitalisation would occur mainly via common shares with restricted voting rights.
The talks have moved slowly also because the troika wants agreement on all parts of the complex Greek rescue deal – including any contribution by public creditors like the ECB – before approving the bailout, a source close to the talks said.
The rescue package, drawn up in October, also includes a bond swap under which banks and insurers will take real losses of about 70 per cent on the Greek debt they hold in a bid to ease Greece’s debt burden by 100 billion euros.
But Greece’s deteriorating economic prospects and struggles with reform have fed concern that will not be enough to get its debt back to a mangeable level and Athens wants public creditors like the ECB to also take part in the bond swap.
Representatives for the banks and insurers were expected to continue talks in Athens over the weekend on the bond swap, which Venizelos has said is now the easier part of the overall process to save Greece.
The debt swap and bailout was meant to reduce Greece’s debt to 120 per cent of GDP by 2020, but EU sources say eurozone governments may now have to lend an extra 15 billion euros on top of the 130 billion agreed for that to happen.
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