Papademos Warns Fellow Greeks Economic Collapse Looms Without Sacrifice
Prime Minister Lucas Papademos told Greeks that cuts in income are the only way to stay in the euro and get more financing (GKCPIUHY) from international creditors to avert an economic collapse that may otherwise come as soon as March.
“We have to give up a little so we don’t lose a lot,” Papademos said, according to an e-mailed transcript of his statements to union and business leaders yesterday. Talks later this month with officials from the European Union, the International Monetary Fund and the European Central Bank, the so-called troika, will focus on a “credible” economic plan for 2012 to 2015.
“Without this agreement with the troika and subsequent financing, Greece in March faces the immediate risk of a disorderly default,” Papademos said.
Appointed in early November to lead an interim government to secure a second financing package, Papademos is racing to complete a voluntary swap of debt with private bondholders, part of the new rescue plan for the country, which also includes 130 billion euros ($166 billion) of public funds. The country redeems 14.4 billion euros of bonds on March 20.
Under the terms of Greece’s second bailout, investors would take a 50 percent hit on the nominal value of 206 billion euros of privately owned debt.
The next loan tranche of 5 billion euros under Greece’s May 2010 EU-led bailout, originally scheduled for December, will be delayed until March because of the discussions on the new aid package, Olivier Bailly, a spokesman for the EU, told reporters today in Brussels.
Bond Yields Rise
Greece’s ASE benchmark stock index (ASE) fell 2.2 percent to 647.58 at the close of trading in Athens today. The yield on the 10-year Greek bond added 7 basis points to 34.94 percent. Two- year note yields rose 72 basis points to 135.02 percent.
Greece will sell 1.25 billion euros of 26-week Treasury bills on Jan. 10, the Athens-based Public Debt Management Agency said today.
The premier is chairing a Cabinet meeting today on an omnibus bill that will include opening up so-called closed professions, including taxis, and regulation on settling outstanding taxes. The legislation is intended to tackle pledges that the troika has said aren’t being implemented effectively or promptly enough to allow the economy to become more competitive and return to growth.
Despite two years of wage cuts and tax increases, the IMF estimates Greece’s 2011 deficit (EUBDGRCE) to be about 9 percent of gross domestic product compared with 10.6 percent in 2010. The economy was expected to shrink about 6 percent last year, according to the latest IMF estimates.
“Greece has not much room for maneuver, but must rely on further austerity and belt-tightening, while extracting as much as it can from sovereign debt holders in current debt swap negotiations,” said Thomas Costerg, an economist at Standard Chartered Bank Plc in London. “Risks are definitely on the rise: there is bailout fatigue in the north, and austerity fatigue in the south, especially in Greece, where GDP shows no sign of bottoming.”
Papademos, 64, assumed office after Germany and France warned Greece last year that they would cut all aid to the country until it signs up to a bailout plan agreed to in Brussels on Oct. 26.
Former Prime Minister George Papandreou, who told his socialist Pasok party yesterday that he would step down as leader and won’t seek re-election as premier, handed off to Papademos after at least five austerity packages whittled down support for his government and his majority in parliament.
Maria Damanaki, the EU’s Maritime Affairs and Fisheries Commissioner, said Greece will need to make more sacrifices. “But I repeat, it gives opportunities,” said Damanaki, whose comments were sent by e-mail after a meeting with Papademos where they discussed use of EU funds to guarantee investments and create jobs.
Political leaders like Antonis Samaras, the head of the second-biggest party, New Democracy, are keeping up the pressure on Papademos to resolve the debt swap and call elections. While Finance Minister Evangelos Venizelos has said elections will be held at the end of April, according to a Dec. 27 report by state-run Athens News Agency, Samaras has said elections can be held at the end of March.
New Democracy, which is calling for no more wage cuts or tax increases, had 21 percent voter support, compared with 13 percent for Papandreou’s Pasok, according to 1,004 people surveyed Dec. 28-29 by Kapa Research. Nearly eight in 10 Greeks say the country’s leaders should do whatever is needed to remain in the euro, according to that poll.
Papademos said the troika had pointed to a range of issues to be tackled. They include adjustments to the minimum wage, abolition of Christmas and summer vacation bonuses and automatic wage increases.
Yannis Panagopoulos, the head of Greece’s biggest private- sector union group GSEE and the driving force behind seven general strikes last year, said he was willing to discuss how to reduce non-wage costs to protect jobs.
The organization won’t consider changes to national labor accords such as cutting the minimum wage and the so-called 13th and 14th annual wages, Panagopoulos said in comments on NET TV.
Greece’s debt is forecast to balloon to almost double the size of its shrinking economy this year without the write-off, the European Commission estimates. The swap is aimed at helping reduce debt to 120 percent of gross domestic product by 2020. A successful swap will reduce the deficit this year to 5.4 percent of GDP, in part by savings on debt servicing costs, according to Greece’s 2012 budget.
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