Greece Pushes Back on Demand for More Cuts
A leader of Greece’s governing coalition pushed back against German demands for deeper budget cuts to get the bailout needed to prevent a financial collapse.
In Athens, unions struck for the second time this week and police used tear gas to counter protesters. George Karatzaferis, who heads one of the three parties supporting interim Prime Minister Lucas Papademos, said he wouldn’t support austerity measures worked out for a rescue. He spoke hours after German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that Greece was missing deficit targets.
“What has particularly bothered me is the humiliation of the country,” Karatzaferis, whose Laos party has 16 members in the 300-seat parliament, said in televised comments. “Clearly Greece can’t and shouldn’t do without the European Union but it could do without the German boot.”
Schaeuble said that current plans would leave Greece’s debt as high as 136 percent of gross domestic product by 2020, according to two people in the meeting who spoke on condition of anonymity because it was private. That compares with the 120 percent foreseen in the 130 billion-euro ($172 billion) bailout being negotiated. Debt was about 160 percent of GDP last year.
“The Greek offer is not sufficient and they have to go away to come up with a revised plan,” Bertrand Benoit, a spokesman for the German Finance Ministry, said by telephone.
Emergency talks of euro-area finance chiefs broke up late last night 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 its major party leaders sign up to the program so they don’t retreat after upcoming elections. Another extraordinary meeting was set for Feb. 15.
“In short: no disbursement without implementation,” Juncker said. “We can’t live with this system while promises are repeated and repeated and repeated and implementation measures are sometimes too weak,” he said.
The impasse left European stocks falling for the fourth time in five days and the euro declining from yesterday’s two- month high against the dollar.
In a bid to pressure his country’s lawmakers, Greek Finance Minister Evangelos Venizelos said the parliamentary vote on budget cuts amounted to a ballot on euro membership.
‘Salvation and Future’
“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,” Venizelos said in Brussels.
Resolution of the aid talks, which have dragged on since July, would allow Greece to make a 14.5 billion-euro bond payment on March 20 and contain the threat that speculators will target debt-saddled nations including Italy and Portugal.
The standoff put the spotlight on the leaders of the three Greek political parties backing the caretaker government of Papademos, a former European Central Bank vice president. Greece’s private-sector union GSEE called a 48-hour strike beginning today, shutting down schools, government services, and some public transit for the second time this week.
Fitch Ratings today reiterated its view that Greece will default even with the rescue package.
Greece “must get this deal agreed really within the next few days to enable them sufficient time and have the new bailout money disbursed before that bond is due,” Tony Stringer, Fitch’s managing director of global sovereigns, said in an interview in Singapore. “If they don’t manage to achieve that, then it could be in the realm of a disorderly default.”
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 reports yesterday showing unemployment jumping to 20.9 percent in November and industrial production declining.
Negotiations over another bailout began seven months ago and Greece’s participation in the euro first came into question when then-Prime Minister George Papandreou threatened in October to hold a referendum on austerity.
In contrast to the approach to Greece, Germany may be willing to study revising the terms of Portugal’s bailout, Schaeuble told his Portuguese counterpart in Brussels in a conversation picked up by Portuguese television.
Germany will “be ready” for an adjustment of the Portuguese program if needed, Schaeuble told Finance Minister Vitor Gaspar at the meeting yesterday.
The gathering, attended by International Monetary Fund chief Christine Lagarde and European Central Bank President Mario Draghi, came hours after Papademos and party chiefs ended a week of meetings with a deal on fresh budget cuts.
The measures are aimed at delivering budget reductions totaling 1.5 percent of GDP this year and range from a 20 percent paring of the minimum wage to lower pension payments and immediate job cuts for as many as 15,000 state workers.
With European officials signaling investors will soon accept a debt swap that would impose losses of about 70 percent of their Greek bond holdings, the ECB came under pressure to offer additional relief.
“The ECB must look, within the framework of its independence, what sort of contribution it can make,” Juncker said.
Draghi yesterday left open the possibility of passing up some the profits on the Greek bonds the central bank bought during the crisis. He nevertheless rejected selling them to Europe’s temporary bailout fund at a loss because doing so would amount to “monetary financing” of governments, which is banned by European treaties.
Bondholders met in Paris yesterday to discuss accepting an average coupon of as low as 3.6 percent on new 30-year bonds in the 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 Institute of International Finance, which represents investors, said it welcomed progress made by Greece and look forward to the debt swap being completed next week.
“The Greeks understand that it’s not five minutes to midnight but 30 seconds to midnight,” Luxembourg Finance Minister Luc Frieden said.
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