Business | Economy
Reform accord eludes Greece
Wrangling on rescue plan continues
- Reuters
- Published: 00:00 February 4, 2012
Athens: Greece's government struggled yesterday to agree on tough labour reform that appeases both wary political leaders and irate lenders faced with a rising bill to save the country from bankruptcy.
Prime Minister Lucas Papademos is under pressure to wrap up parallel talks on a debt swap with private bondholders and negotiations with lenders on a €130-billion (Dh628 billion) bailout to avert a chaotic default when bond redemptions come due next month.
Athens has repeatedly said the talks are in their final stage but has failed to secure either deal after weeks of wrangling, largely on concern that the rescue plan will not do enough to bring Greece's debt burden under control.
Eurozone governments may now have to cough up an additional €15 billion to the €130 billion agreed in October because of funds needed to recapitalise tottering Greek banks, European Union sources said.
Political issues
Finance Minister Evangelos Venizelos met officials from the so-called troika of foreign lenders yesterday in a bid to agree details on wage cuts and bank recapitalisation before they are presented to political leaders for approval today.
"We are having difficult negotiations and have difficult decisions to take," said Greek government spokesman Pantelis Kapsis. "We have to deal with political issues which are open and difficult."
Greece had been expected to conclude both sets of talks before a meeting of Eurozone finance ministers on Monday, though Berlin has suggested the meeting will be put off until all elements of the rescue plan are secured.
The lack of agreement offers little respite for investors fretting that failure to strike a deal quickly will trigger a messy default that in turn sows panic across financial markets and pushes the global economy back into a recession.
A bond swap, under which banks and insurers take real losses of about 70 per cent on Greek debt they hold, is largely in place but yet to be sealed over concerns that public creditors like the European Central Bank will have also have to chip in.
Greece's foreign lenders, on the other hand, have yet to sign off on the entire bailout on doubts over Athens' commitment to reforming the Greek economy to make it more competitive.
Once Athens nails down details on reforms with lenders, Papademos faces the tricky task of convincing the three party chiefs in his coalition to back the unpopular reforms just a few months before the country heads to elections.
He is expected to convene a meeting of the socialist, conservative and far-right leaders in his coalition today to persuade them that Athens will have no choice but to default if they fail to approve the reforms.
Rare bright spot
Kapsis, the government spokesman, suggested Papademos would try to offer alternative proposals to the party chiefs in a bid to win their backing, though he warned each one would entail pain for Greeks reeling from wave after wave of austerity.
In a rare bright spot for Athens, a finance ministry official yesterday said Greece's 2011 budget deficit will be smaller than expected at between 9.1 and 9.4 per cent of GDP, thanks to an emergency property tax.
That is still above initial EU/IMF targets but might help Athens persuade its lenders that it will implement long-delayed reforms and slash spending further. Athens had previously estimated the deficit would be above 9.5 per cent of GDP.
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