European leaders stepped up pressure on Greek politicians to meet the conditions of a 130 billion-euro ($171 billion) bailout, saying time was running out.
French President Nicolas Sarkozy met German Chancellor Angela Merkel in Paris today as Greece’s interim prime minister, Lucas Papademos, prepared to negotiate with the so-called troika of international lenders in Athens for a second day. A gathering of Greek political leaders was delayed until tomorrow as they struggled for a unified response.
“I can’t quite understand why we need a few more days,” Merkel said today in a joint briefing with Sarkozy. “Time is running out.”
With Greece’s stability at stake, a tentative consensus yesterday among party leaders on an accord framework marked a step forward as Athens played host to parallel domestic and international negotiations while persuading Greece’s private creditors to accept bigger writedowns on their debt holdings.
“An agreement has never been so close, neither for private nor public creditors,” Sarkozy said. “We have to conclude it.”
The leaders of Europe’s two biggest economies proposed setting up an account for Greece’s interest payments to guarantee lenders are paid. Sarkozy said in a later joint interview that he and Merkel are working “hand-in-hand” to prevent a Greek default.
‘Do Its Homework’
Allowing Greece to go bankrupt “isn’t an option,” Sarkozy said. At the same time, there can be “no community money” without reform. “The Greek government must do its homework and carry out its responsibilities,” he said.
Euro-area finance chiefs told Greek Finance Minister Evangelos Venizelos in a Feb. 4 conference call that an increase in the bailout package wasn’t forthcoming, underscoring their frustration at a lack of progress on fixing the economy. The effort to keep Greece from tumbling into default presents what Deutsche Bank AG Chief Executive Officer Josef Ackermann called a “make or break” moment.
The euro was down 0.3 percent at $1.3117 at 8:28 p.m. in Athens.
Papademos will meet the three party leaders tomorrow to hammer out the details of the measures. Antonis Samaras, the head of the second-biggest party, New Democracy, indicated he would oppose some measures proposed by the so-called troika of international creditors -- the European Commission, the European Central Bank and the International Monetary Fund.
‘I Will Fight’
“They are asking us for greater recession, which the country can’t take,” Samaras said yesterday. “I will fight to avoid that.”
Adding to pressure on Papademos and political leaders, Greece’s biggest public-sector and private-sector union groups, ADEDY and GSEE, hold a 24-hour general strike tomorrow to protest measures that could include a cut in the minimum wage, lower pensions and immediate layoffs for state employees.
Administration Minister Dimitris Reppas said the troika asked for 15,000 state jobs to be cut this year and that he opposes “blind firings.” He told Athens-based Mega TV that plans to reduce the number of state employees by 150,000 by the end of 2015 continue to be government policy.
Papademos and the party leaders agreed in a five-hour meeting yesterday to make additional reductions this year equal to 1.5 percent of gross domestic product. They have yet to iron out differences over policy measures demanded by lenders on recapitalizing banks, ensuring the viability of pension funds and reducing wages and non-wage costs to boost competitiveness.
The troika wants the country to detail more than 4 billion euros of measures to meet targets for 2011 and 2012 because wage cuts will deepen the recession and cause a shortfall this year, one government official told reporters in Athens.
The troika argues that cutting payments such as private-sector holiday allowances is among reforms necessary to boost competitiveness in the country. Those opposed say the cuts would deepen the country’s recession, now in its fifth year.
Greece’s efforts to win a second bailout from the troika have hung in the balance over the past three days as negotiations in Athens failed to clinch an agreement. Venizelos said on Feb. 4 the talks were on a “razor’s edge.”
Facing a 14.5 billion-euro bond payment on March 20 and general elections as soon as April, Papademos must heed international demands for greater austerity to complete the talks on a second package in time. Open questions involve how much more aid Greece needs, how much more austerity is required, and how to involve the ECB in the private-sector creditor debt swap.
Guarantees from Greek political leaders such as Samaras, who leads in opinion polls, are key to securing the funds from the EU and IMF. International lenders want assurances that whoever wins the next election will stick to pledges made now to receive financing.
George Papandreou, the former prime minister who still leads the Pasok socialist party, the biggest in the Greek parliament, proposed that Papademos’s mandate be extended to boost confidence among lenders the pledges will be implemented.
That is an option likely to be opposed by Samaras, who has called for elections as soon as the new financing is agreed.
The rescue blueprint includes a loss of more than 70 percent for bondholders in a voluntary debt exchange and loans that will probably exceed the 130 billion euros now on the table. A formal offer for the debt swap must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due.
“One thing is clear: the Greek drama continues to unfold,” Joachim Fels, chief economist at Morgan Stanley, wrote in a note yesterday. “A really, really bad scenario for the euro area -- a Greek default and departure from the euro area -- simply cannot be excluded.”
Greece has lagged behind budget targets set when it won an initial, taxpayer-funded rescue of 110 billion euros in May 2010, prompting euro-area threats to cut off aid and hastening a German push to make bondholders contribute. The country’s economy shrank 6 percent last year, according to the most recent IMF estimates, the budget deficit is still close to 10 percent of GDP and unemployment is about 18 percent.
EU President Herman Van Rompuy said he can’t be sure that Greece will solve its debt crisis.
While the Greek government has made progress in fighting the crisis, “that is not enough” because policy makers have no option than “to correct the mistakes made by their predecessors.” Van Rompuy said during a question-and-answer session at Humboldt University in Berlin today.
“It takes longer than we thought,” he said. Greece’s implementation of debt-cutting measures over the past year is “weaker” than needed.
Even after a second bailout, Greece may be saddled with too much debt, too little growth and too large a budget hole to do without even more money, which euro nations led by Germany are increasingly reluctant to offer.
Papademos met yesterday with the lead negotiators on the debt accord with Greece, Charles Dallara, managing director of the International Institute of Finance, and Jean Lemierre, a senior adviser to the chairman of BNP Paribas SA. The debt swap, Venizelos said on Feb. 4 “is now the easiest part of the process.”
Creditors are prepared to accept an average coupon of as low as 3.6 percent on new 30-year bonds in the exchange, said a person familiar with the talks, who declined to be identified because a final deal hasn’t been struck yet.