Greek leaders baulk at pay, spending cuts

Athens/Paris: German Chancellor Angela Merkel told Greece yesterday to make up its mind fast on accepting the painful terms for a new European Union/International Monetary Fund bailout, but the country's political leaders responded by delaying their decision for yet another day.

Failure to strike a deal to secure the €130 billion (Dh627.47 billion) rescue — much of which Germany will fund — risks pushing Athens into a chaotic debt default which could threaten its future in the Eurozone.

"I honestly can't understand how additional days will help. Time is of the essence. A lot is at stake for the entire Eurozone," Merkel told a news conference with French President Nicolas Sarkozy.

But leaders of the three parties in the coalition government appeared to need at least one additional day.

The office of Greece's Prime Minister Lucas Papademos said that a meeting of leaders from the conservative, socialist and far-right parties due yesterday had been postponed to today.

The party leaders, positioning themselves for a likely general election in April, have baulked at accepting another package of deeply unpopular wage and pension reductions, job cuts and tougher tax enforcement measures.

Papademos said after five hours of talks on Sunday that party chiefs had agreed measures including wage cuts and other reforms as part of spending cuts worth 1.5 per cent of gross domestic product.

Hopes rose on Monday that they had also made progress on recapitalising domestic banks, which are up to their necks in Greek government bonds now worth a fraction of their face value. Greek bank stocks were up 9.7 per cent in the afternoon on hopes that lenders would be recapitalised without being nationalised after a debt swap under the latest bailout deal, which will radically cut the value of their bond holdings.

The euro fell yesterday as the failure of Greek coalition parties to sign off on the terms of a new bailout kept alive the risk of a chaotic default that could ensnare other countries such as Portugal.

Alarmed by the prospect of yet more budget cuts, Greece's two main trade unions said they would call a 24-hour strike for today in protest against policies they say have only driven the economy into a downward spiral.