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Greek party leaders prepare for crucial debt talks
Question of the Day
ATHENS (AP) — Greek coalition leaders are preparing their responses to a draft deal on steep cutbacks demanded by creditors in return for a 130-billion-euro ($170 billion) bailout that will shield the country from a looming bankruptcy.
Their decisions will be announced at a meeting with Prime Minister Lucas Papademos, originally scheduled for 1 p.m. (6 a.m. EST) Wednesday but delayed for at least four hours to let the three coalition parties study the 50-page English-language document, drawn up with the country’s debt inspectors.
The coalition talks have been postponed repeatedly over the past three days to make time for exhaustive negotiations with representatives of the European Union, the European Central Bank and the International Monetary Fund, on whose approval the continued flow of Greece‘s vital rescue loans depends.
As anger mounts in Greece at the prospect of further economic pain, patience is running out abroad.
“This is not a question one can take a lot of time to tackle,” Steffen Seibert, Mrs. Merkel’s spokesman, said. “It is important that the negotiations now come to an end,” he said.
Without the bailout, Greece would not have enough money to pay off a big bond redemption payment due on March. 20, triggering a default that risks sending shockwaves throughout financial markets and the global economy.
“We face crucial decisions … that will determine the country’s course in coming years,” Deputy Finance Minister Philippos Sachinidis told Parliament. “These days are among the most crucial of our post-World War II history.”
The three organizations, known collectively as the “troika,” have demanded further measures to improve Greece‘s competitiveness and economic stability — including new private-sector wage and pension cuts; public-sector layoffs; and cuts in health, welfare and defense spending — before they sign off on the new 130-billion-euro bailout.
The troika’s proposals have horrified unions, who held a general strike Tuesday. Greeks already have been hit with a spate of salary cuts and increased taxation over the past two years, amid record-high unemployment and a five-year recession.
Labor Minister Giorgos Koutroumanis warned Parliament last week that a demanded reduction in the 751-euro ($985) monthly minimum wage would quicken the Greek economy’s contraction and hit the revenues of struggling pension funds that have already lost 20 billion euros ($26 billion) since 2009.
But Athens has minimal ground for maneuvering. Without the rescue loans, the country will default on its massive debts in March, when it faces a 14.5-billion-euro ($19 billion) bond redemption.
Stocks advanced Wednesday, while the euro was trading near two-month highs, as global markets were hopeful a deal would be struck in Athens. Greek shares were up 0.9 percent in afternoon trading.
“We are finally approaching the endgame of the Greek talks,” said Gary Jenkins, managing director at Swordfish Research. “Ultimately it is difficult to see how they can do anything other than agree a deal. After all, the alternative is a disorderly default which could lead to a much deeper economic depression and potential civil unrest.”
Late Tuesday, Greece‘s private creditors signaled progress on a separate, linked agreement that would cut the country’s privately held debt load by 50 percent, or some 100 billion euros ($131 billion).
The intention is to ensure that Greece‘s long-term debts are sustainable. Banks, pension and hedge funds, and other private-sector holders of Greek debt are expected to swap their current bonds for new ones worth 50 percent less than the original face value, with longer repayment terms and a lower interest rate. They are also expected to get a 30-billion-euro ($39.82 billion) payment as part of the bond-swap deal.
Representatives of the Institute of International Finance, which has been leading the talks for private bondholders, had a “constructive meeting” with Mr. Papademos, IIF spokesman Frank Vogl said.
Mr. Papademos and Finance Minister Evangelos Venizelos soon will brief the rest of the 17-nation eurozone on the proposed deal, Mr. Vogl said.
The meeting of eurozone finance ministers could happen as soon as Thursday in Brussels, according to officials, although that will depend on an agreement in Athens on the terms of the second bailout.
“We expect that such a meeting … is meant to take place,” German Finance Ministry spokeswoman Marianne Kothe said. “The important thing is that Greece has to create certain preconditions for it to happen, and that is, according to my knowledge, not yet the case.”
If political leaders accept the demanded austerity, Greek officials say a Cabinet meeting will approve the deal, likely later Wednesday. Parliament then will have to vote on the deal over the weekend.
Ratification should prove simple, provided all three coalition partners back the deal, as they control a combined 252 of Parliament’s 300 seats — enough to carry the vote even if there is a limited backbencher rebellion.
Greece has been kept solvent since May 2010 by payments from a 110-billion-euro ($145 billion) international rescue loan package. When it became clear the money would not be enough, a second bailout was decided last October.
The Greek government already has accepted that it must cut 15,000 state jobs in 2012 to get the new bailout, as well as reduce 2012 spending by a further 3.3 billion euros ($4.3 billion), lower wage costs in the private sector and recapitalize banks without nationalizing them.
But disagreement remains on the extent of those cuts between party officials, who are set to face national elections in late April — after the debt deals have been sealed and implemented.
The majority Socialists, main rival conservatives and the small right-wing LAOS party are also at odds over when the elections should be held.
The Socialists, who handed over power to Mr. Papademos in November and are trailing badly in opinion polls, want him to stay through parliament’s four-year term that ends in late 2013. But conservatives, buoyed by their lead in opinion polls, are demanding an April vote according to plan.
LAOS leader George Karatazferis criticized eurozone heavyweights France and Germany on Tuesday, saying they were carrying out an “aggressive humiliation of Greece” with their demands for new austerity measures.
A disorderly bankruptcy by Greece likely would lead to its exit from the eurozone, a situation that European officials have insisted is impossible because it would hurt other weak countries such as Portugal, Ireland and Italy.
Mrs. Merkel also argued strongly against the prospect.
“The euro is not just an economic project, it is also a political project — and I am not going to participate in pushing Greece out of the euro,” she said late Tuesday. “It would have incalculable consequences.”
Derek Gatopoulos in Athens, Gabriele Steinhauser in Brussels, and Juergen Baetz and Geir Moulson in Berlin contributed to this report.
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