Feb. 8 (Bloomberg) -- Greek Prime Minister Lucas Papademos began negotiating with leaders of the political parties supporting his caretaker government as he tried to make up for lost time to secure a second aid package.
Papademos met with the chiefs in Athens today after delaying the gathering for a second time in as many days as Greek officials and international creditors haggled over terms. He held an unscheduled meeting late last night with the so-called troika of the European Commission, the European Central Bank and the International Monetary Fund, to put final touches on a 130 billion-euro ($172 billion) rescue plan.
Yesterday’s delay was yet another hitch in completing a package that’s been on the table since July. The Greek government, facing a 14.5 billion-euro bond payment on March 20, is struggling to arrange financing to avert a collapse of the economy, risking a new round of contagion in the euro area.
“The situation is getting more problematic for Greece day by day,” Michael Meister, the deputy floor leader and finance spokesman in parliament for Chancellor Angela Merkel’s party, said today in a telephone interview. “A day wasted in failing to tackle Greece’s administrative, budget and competitive problems is a bad day.” Greeks need to reform “not for Brussels, Berlin or the IMF, but for their own sake.”
The tussle in Athens threatens to hold up a critical element of the plan: a debt swap that will slice 100 billion euros off more than 200 billion euros of privately-held debt. The rescue blueprint includes a loss of more than 70 percent for bondholders in the voluntary debt exchange as well as loans that will probably exceed the 130 billion euros now on the table.
Euro region finance ministers will convene in Brussels at 6 p.m. tomorrow. Luxembourg Prime Minister Jean-Claude Juncker, who chairs euro-area finance meetings, announced the gathering in an e-mailed statement today, without specifying the agenda. Euro area politicians must sign off on any aid accord reached by negotiators.
The ECB is prepared to swap its holdings of Greek government bonds to contribute to a reduction of the country’s debt burden, Dow Jones reported yesterday, citing unidentified people briefed on the talks. The agreement could reduce Greece’s debt by as much as 11 billion euros, Dow Jones said.
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. Parliament may be called to vote on the terms of the writedown on Feb. 12, state-run Athens News Agency reported yesterday, without saying how it got the information.
The German government is readying plans for up to three parliamentary votes on the plan as soon as next week, Meister said.
The euro touched an eight-week high against the dollar today, reaching $1.3289. European stocks advanced, with the Stoxx Europe 600 Index up 0.3 percent after two days of losses.
Papademos had “constructive” talks last night with Charles Dallara, managing director of the International Institute of Finance, which has negotiated the terms of the swap, and Deutsche Bank AG Chief Executive Officer Josef Ackermann, according to an IIF statement.
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. They will meet in Paris tomorrow to discuss the deal, which is contingent on the country wrapping up the second aid package.
The European Financial Stability Facility, the region’s bailout fund, will “probably play a significant role” in the swap and a new rescue program for Greece, Deputy Chief Executive Officer Christophe Frankel said today, without elaborating.
Greece may have only three days left to arrange financing for its bond payment and avoid “outright default,” said Thomas Mayer, chief economist at Deutsche Bank.
“If they don’t have the money in the account at the time the payment is due, then they really default,” Mayer said today in a radio interview on “Bloomberg -- The First Word” with Ken Prewitt. “Time is of the essence. I think we have maybe one, maybe two, maybe three more days but that’s it.”
While the prime minister and party chiefs have agreed to make further cuts this year equal to 1.5 percent of gross domestic product, they have yet to close gaps over measures demanded by creditors for the rescue. Unions, which went on strike yesterday, have derided the conditions as “blackmail.”
“There is a path here for Greece, there is a way out for Greece, if it wants to take it, but there’s no denying this will be tough,” Grant Lewis, an economist at Daiwa Capital Europe Ltd. in London, said in a radio interview with Bloomberg’s Ken Prewitt yesterday. “You are talking about multiyear austerity packages against a backdrop of an economy that’s shrinking very rapidly.”
Merkel, speaking in Berlin late yesterday at an event on Europe’s future, said the impact of a Greek exit from the euro would be “incalculable,” and restated her determination to keep Greece in the single currency region.
The chancellor, who heads Europe’s biggest economy and the biggest contributor to euro-area bailouts, said there is “no way around” Greece carrying out reforms. That country is in a “very complicated situation,” she said.
A Greek official said yesterday the government and international creditors were close to a final draft of an agreement on budget and structural measures needed to extend the financial lifeline. Another official said earlier yesterday talks were focused on how to make up for a 550 million-euro shortfall in new austerity measures for this year.
With elections due as early as April, Greek political leaders are arguing over demands such as ensuring the viability of pension funds and reducing wage- and non-wage costs to boost competitiveness.
Efforts to win a second bailout from the troika have hung in the balance for six days as lenders demand officials sign up to measures ranging from a reduction in the minimum wage and lower pensions, to immediate job cuts for as many as 15,000 state employees.
The troika argues such moves are needed to boost competitiveness. Those opposed say the cuts would deepen the country’s recession, now in its fifth year.
Antonis Samaras, the head of the second-biggest party, New Democracy, has indicated he will oppose measures that will deepen the economy’s downturn. George Karatzaferis, the head of Laos, one of the three supporting Papademos, sought assurances that the program would lead Greece out of the crisis.
“I am concerned at our lenders’ intentions when they use time as a means to blackmail,” Karatzaferis told reporters as he entered today’s meeting.
Guarantees from Greek leaders such as Samaras, who is ahead in opinion polls, are key to securing the funds. International lenders want assurances that whoever wins the next election will stick to pledges made now to receive financing.
Samaras’s party has 31 percent support from voters, according to a Public Issue poll published today, compared with 8 percent for the socialist Pasok party, the biggest in the current parliament. The survey of 1,002 Greeks showed a growing number want elections immediately, and waning support both for Papademos and the parties that back him.