Oct. 17 (Bloomberg) -- Greek Prime Minister Antonis Samaras faces a growing revolt from his coalition partners as representatives of the country’s lenders press for more changes to the country’s labor market as a condition for releasing further bailout funds.
Evangelos Venizelos of Pasok and the Democratic Left’s Fotis Kouvelis, whose parliamentary seats give Samaras the majority in Parliament he needs to govern, both said they wouldn’t accept further changes to labor rules after a three-hour meeting with the prime minister in Athens yesterday.
“Further interventions on labor issues don’t help productivity, competitiveness or employment,” Venizelos told state-run NET TV. “We must look elsewhere now and the insistence on this is wrong,” he said, adding some European Union members were “playing with fire.”
The hitch comes as Samaras prepares to argue for a two-year extension to meet the country’s bailout targets at his first EU summit on Oct. 18. A deal with the EU, the International Monetary Fund and the European Central Bank, the so-called troika, is needed to unlock a 31 billion-euro ($40.7 billion) aid installment.
The government needs the funds to recapitalize its banks and pay debts. Samaras didn’t comment after yesterday’s meeting.
Samaras is seeking to spread pension and wage cuts over four years rather than two to smooth the impact on an economy that’s declined by about 20 percent since 2008. His New Democracy party has only 128 seats in the 300-seat Parliament and relies on Pasok and Democratic Left’s combined 50 seats to turn any pledge to lenders into law.
In a related development, Spain yesterday kept its investment grade credit rating from Moody’s Investors Service, which cited a reduction in the risk of losing market access because of the ECB’s willingness to buy the nation’s debt.
Initial plans to have completed an agreement with the troika by the summit have been abandoned, despite daily meetings at the Finance Ministry between Greek officials and the lenders.
“Negotiations with the troika seem to be spinning their wheels, which is not good news,” said Thomas Costerg, an economist at Standard Chartered Bank in London, who said a decision about the next installment of bailout funds was likely to slip to next month. “Underlying uncertainty about Greece’s future remains high as the debate is now increasingly on Greece’s debt metrics, going beyond a mere issue of tranche and funding stress.”
Labor Minister Ioannis Vroutsis told reporters that “there is no impasse, just no agreement yet” after a report earlier from state-run Athens News Agency that the talks had broken down. The minister said the main sticking points with the troika centered on reducing severance pay and abolishing automatic pay increases granted after three years. He said the troika is scheduled to leave Athens today.
Greece needs to commit to a list of 89 policy steps before the EU summit. Structural reforms such as changes to labor and product markets are part of the conditions demanded of Greece in return for the 240 billion euros in funds pledged to the country since May 2010. A second rescue package in February was accompanied by changes such as a 22 percent cut in the minimum wage.
Politicians in Greece are wary of further changes to a labor market where unemployment has soared to a quarter of the workforce and as the country heads for a sixth year of recession. Democratic Left’s Kouvelis said supporting such changes would “feed the recession and unemployment.”
“The troika’s demand that workers’ rights be leveled isn’t a structural reform,” Kouvelis said. “It’s not a structural reform to dismantle what rights of workers have remained. Democratic Left won’t support any measures affecting labor relations and rights.”
Unions have called a general strike for Oct. 18, the first day of the summit, to protest what will be the second round of pension and wage cuts this year.
Venizelos’s party endorsed a draft law calling for all state asset-sales procedures to be approved by Parliament, threatening to further delay a program pledged to lenders that is designed to reduce the country’s debt.
The Greek government and the troika have been locked in talks for months. Finance Minister Yannis Stournaras has been working on a final agreement with the troika on the breakdown of a 13.5 billion-euro package of austerity measures for the next two years to meet deficit-cutting targets. Health-care fund arrears and a revision to gross domestic product figures complicate the talks as well as poor implementation sparked by successive elections in May and June this year.
Stournaras said late yesterday that Greece would work on initiatives to resolve the impasse on the labor issue over the next few days and that talks with the troika, while tense at times, had been held in a spirit of cooperation.
An official, who asked not to be identified, said agreement had been reached on the fiscal measures for 2013 and 2014, while both sides agreed the economy would contract 4.2 percent next year, compared with 3.8 percent in the draft budget announced earlier this month.
“We made significant progress,” Poul Thomsen, the IMF’s head of the Greek mission, told reporters in Athens after the meetings. “We reached agreement on most policy issues. The few ones outstanding, we expect to cover them soon.”
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