Feb. 11 (Bloomberg) -- Greek Prime Minister Lucas Papademos won Cabinet approval for deeper budget cuts needed to secure a second package of international aid, preparing the way for parliamentary vote in his race to prevent financial collapse.
The 287-page document was approved unanimously, said a government official who declined to be named. The backing means parliament will probably vote tomorrow on budget measures equal to 7 percent of gross domestic product over the next three years and a debt swap to cut 100 billion euros ($132 billion) off more than 200 billion euros of privately-held debt.
“The social cost this program implies will be limited compared to the economic and social catastrophe that would follow if we don’t adopt it,” Papademos told his ministers earlier, according to a transcript of his comments. “The completion of the program and financial support will cement our country’s future in the euro area.”
The support capped a week of tension as European Union and International Monetary Fund officials argued with Greek officials over the conditions to secure a 130 billion-euro ($172 billion) rescue package. Papademos on Feb. 9 reached an accord with leaders of the three parties supporting his interim government hours before a crucial meeting of euro-area finance ministers in Brussels, only to be told it needed more work.
Time for Responsibility
“Now is the time for responsibility for all of us toward our country,” George Papandreou, the former prime minister of Greece and the leader of the socialist Pasok party, said today in a televised speech in Athens. “The recipe for the program isn’t right or wrong. It’s the only one available.”
Antonis Samaras, the leader of New Democracy, the second-biggest party, said a write-off of debt through a voluntary exchange will allow the country to move away from the precipice.
“It won’t solve the problem, but it will help,” Samaras told his party’s lawmakers in Athens, in comments televised live on state-run NET TV. ‘‘It distances us from bankruptcy, looting, the chaos that would follow.’’
He said it was self-evident that party discipline would be imposed during the vote on a second financing package. “I’m sure you will all do your duty by your country.”
Samaras also said elections are needed as soon as financing is secured, as previously agreed on by party leaders.
With only weeks remaining before a 14.5 billion-euro bond payment on March 20, Papademos saw five ministers resign in two hours and protesters clashing with police in Athens during an anti-austerity strike.
“It should be evident that whoever disagrees and doesn’t vote for the new program cannot remain in this government,” he told his ministers. Political uncertainty, he said, was the main reason for finance ministers failing to approve the program.
Failure to secure the rescue package threatens 11 million Greeks with a default that would halt the payment of wages and pensions and shut schools, hospitals and businesses, Papademos said. Tomorrow’s vote amounts to a ballot on euro membership, Finance Minister Evangelos Venizelos said yesterday in Brussels.
“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,” he said.
German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that Greece was missing deficit goals and had to do more to meet its bailout commitments.
The Laos party, with 16 members in the parliament, said it would oppose the plan. The party’s four ministers in the Papademos government resigned yesterday.
“What has particularly bothered me is the humiliation of the country,” George Karatzaferis, the leader of Laos, said in televised comments. “Clearly Greece can’t and shouldn’t do without the European Union but it could do without the German boot.”
The parties that support Papademos’s interim government will meet ahead of the parliamentary votes on the new measures. Lawmakers will convene from both the Socialist Pasok party and the New Democracy party, which leads in opinion polls before elections due as soon as April. A number of Pasok deputies have threatened to vote against the bill.
Police in Athens scuffled with protesters as unions started a 48-hour strike against the austerity measures demanded by the so-called troika of international creditors who monitor progress made by Greece.
Schaeuble, briefing lawmakers in Berlin on troika estimates relayed to the Brussels meeting on Feb. 9, said current plans would leave Greece’s debt as high as 136 percent of GDP by 2020, according to two people in the meeting. That compares with the 120 percent foreseen in the second bailout. Debt was about 160 percent of GDP last year.
The emergency euro-area talks broke up late on Feb. 9 with Luxembourg Prime Minister Jean-Claude Juncker saying Greece must turn its budget cuts into law, flesh out 325 million euros in spending reductions and have major party leaders sign up to the program so they don’t retreat after the elections. Another extraordinary meeting was set for Feb. 15.
Resolution of the aid talks, which have dragged on since July, would allow Greece to make the March bond payment and contain the threat that speculators will target debt-saddled nations including Italy and Portugal.
The strike called by the private-sector GSEE union shut down schools, government services, and some public transit for the second time this week.
“They want to privatize the entire country,” Ploumitsa Triantafillopoulou, 42, who works for an organization that promotes day-care facilities for children, said yesterday in an interview. “All of us here we will lose our jobs. They don’t care for us. They don’t care for the people of Greece.”
Europe’s hardline stance follows more than two years in which Greece failed to carry through promised reforms to tackle its uncompetitive economy and meet the terms for aid. Greece blamed its shortcomings on a deepening recession now set to worsen with figures this week showing unemployment jumping to 20.9 percent in November and industrial production declining.
Bondholders met separately in Paris on Feb. 9 to discuss accepting an average coupon of as low as 3.6 percent on new 30-year bonds in a proposed debt swap. An agreement would slice 100 billion euros off more than 200 billion euros of privately-held debt and a formal offer must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due.
European Union Economic and Monetary Affairs Commissioner Olli Rehn said the deal is “practically finalized.”
The measures are aimed at delivering budget reductions totaling 1.5 percent of GDP this year and range from a 22 percent paring of the minimum wage to lower pension payments and immediate job cuts for as many as 15,000 state workers.
To contact the editor responsible for this story: James Hertling at email@example.com