Venizelos Tells Greek Lawmakers to Back Budget Cuts or Risk Exiting Euro

Greek unions held their second strike in a week against proposed austerity measures as Finance Minister Evangelos Venizelos pressed lawmakers to yield to conditions for a bailout, saying a refusal would open the way for the country’s exit from the euro.

Venizelos returned to Athens today after his euro-area counterparts yesterday refused to approve a second aid package for Greece at an emergency meeting. The officials cited the failure to reach previous budget-cutting targets and doubts Greek party leaders will stick to their commitments after elections due as soon as April.

The Greek parliament is due to vote on the measures this weekend. Euro-region ministers are set to meet again on Feb. 15.

“From today until the next meeting of the eurogroup, our country, our homeland, our society has to think and make a definitive, strategic decision,” Venizelos, 55, told reporters after the Brussels talks. “If we see the salvation and future of the country in the euro area, in Europe, we have to do whatever we have to do to get the program approved.”

Greece, which faces a 14.5 billion-euro bond payment ($19.3 billion) on March 20, has since July been seeking a new aid package to follow an initial rescue of 110 billion euros in emergency loans approved in May 2010. The new program foresees a loss of more than 70 percent for bondholders in a voluntary debt exchange and extra public aid of 130 billion euros.

Mounting Pressure

The standoff puts the spotlight on the leaders of the three Greek political parties backing the caretaker government of Prime Minister Lucas Papademos, a former European Central Bank vice president. Haggling over austerity measures between Papademos and the “troika” of the European Commission, ECB and International Monetary Fund stalled for days over pension cuts until the premier announced a “general political agreement” hours before yesterday’s Brussels meeting.

“Yesterday’s pledge by Greece’s main political leaders to accept the terms for a second bailout was of limited significance, as was its prompt rejection by the eurogroup,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “When the causes of the failure of the first bailout have yet to be addressed, there is scant chance of the second working.”

Greece’s private-sector union GSEE called a 48-hour strike beginning today, shutting down schools, government services, and some public transit for the second time this week. The move was supported by ADEDY, the public-sector union. Deputy Labor and Social Security Minister Yiannis Koutsoukos, a former head of the ADEDY union, resigned in protest over the austerity measures, according to a statement sent from the Pasok socialist party member’s office.

‘Extortionate’ Cuts

Greece’s lenders ignored the government’s proposals in “a completely extortionate, improper and shameless manner,” Koutsoutos said in an e-mailed statement. “I can’t implement the measures decided.”

Venizelos said yesterday’s euro-area gathering left no more room for political games in Greece over budget policy. The Papademos administration is backed by the Socialist Pasok party led by former Premier George Papandreou, New Democracy under Antonis Samaras and Laos headed by George Karatzaferis.

“There were many objections from many countries based on the fact that we didn’t fully complete in cooperation with the troika the catalogue of additional fiscal measures that must be taken,” said Venizelos, a Pasok leader. “But the main thing is that the eurogroup took serious note of the fact that there haven’t yet been written, explicit and unequivocal pledges from the leaders of all the parties of support for this program.”

Euro Risk

It’s not the first time the financial crisis that erupted in 2009 raised the possibility of a fracture of the currency zone. The 17-nation euro area’s rules neither permit nor foresee an exit by a member. Papandreou dropped a call for a referendum on austerity last November when European leaders said it could lead to Greece quitting the euro.

The Cabinet will probably meet today to approve the agreement before discussion in Parliament this weekend. Today will be marked by a series of meetings with lawmakers as attempts get underway to shore up support for the bill in Parliament.

Socialist Pasok party lawmakers are due to discuss the new measures today, while lawmakers of the New Democracy party will meet at 8 p.m.

Samaras View

Samaras said his party’s negotiations with the troika resulted in smaller pension cuts, criticizing the previous Papandreou socialist government for failing to negotiate over the past two years to protect Greeks from austerity measures and that pension cuts were half of what were initially sought. He said Greece needs national elections now more than ever.

His New Democracy party fought to avert “more austerity, more unemployment and more misery for Greeks,” Samaras said in comments televised live on state-run NET TV yesterday. “We must show that what is happening to Greece will spill over to Europe if we don’t avoid one-sided and relentless austerity.”

The IMF defended its approach in negotiating the terms of a new loan to Greece, saying it’s not forcing the country to take steps such as budget cuts.

“The IMF is not imposing austerity on Greece,” IMF spokesman Gerry Rice told reporters in Washington yesterday. “What we’re trying to do here is come up with a program that will return Greece to a sustainable path.”

To contact the reporters on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net; Maria Petrakis in Athens at mpetrakis@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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