Greece negotiations hover on knife-edge

Athens: Negotiations with the EU and the IMF on a critical new bailout for Greece were "on a knife edge," the Greek finance minister said yesterday, adding that the marathon talks had to conclude by tonight.

Evangelos Venizelos spoke of a "very thin line" between success and failure after a "very difficult" telephone conference with fellow Eur-ozone ministers, adding: "We are on knife's edge... everything must be concluded by tomorrow night."

Greece has been negotiating with the EU, IMF and European Central Bank on further action needed to unlock a rescue deal worth ¤130 billion (Dh628 billion).

Pressure is also mounting on Greece to strike a deal with private lenders to wipe out part of its debt, as Athens faces loan repayments of ¤14.4 billion on March 20.

Venizelos said two major points of contention with the EU and IMF remained open — controversial labour cost cuts, and new fiscal measures to address slippage to deficit targets owing to a greater-than-forecast recession.

He added that the time had come for the coalition of political leaders backing the Greek interim government to make "a decision and a commitment" to pave the way for agreement.

"We are [at] the point where there must be a decision and a commitment by the leaders of the three political parties backing the government," Venizelos said.

Outcome unclear

Prime Minister Lucas Papademos is expected to summon the leaders of the socialist, conservative and far-right parties backing his government to a meeting today. But the outcome is unclear, as all three parties have expressed misgivings about the additional fiscal reforms demanded by Greece's creditors.

Greece's seven-month effort to win a second bailout from international creditors resumed on Friday after negotiations overnight failed to clinch an agreement, with the country's stability hanging in the balance.

"After 12 hours of tough talks, we solved a lot of issues," Greek Finance Minister Evangelos Venizelos told reporters in Athens early on Friday. "There are still open, critical issues related to the future of the country and the Greek people."

A plan, in the works since July, may emerge from the talks between international monitors and Greek officials, which are running in parallel with discussions among caretaker Prime Minister Lucas Papademos's coalition members and Greece's government and its creditors.

The discussions have led to tussles among European central bankers and political leaders. The rescue blueprint includes a loss of more than 70 per cent for bondholders in a voluntary debt exchange and loans that will probably exceed the ¤130 billion now on the table.

Open questions involve how much more aid Greece needs, how much more austerity is required, and how to involve the European Central Bank in the debt swap. Facing a ¤14.5 billion bond payment on March 20 and general elections as soon as April, Papademos must heed calls for tighter austerity to complete the talks on a second aid package in time.

"We are in the final phase of this very critical process to shape a new financing programme for Greece and to complete the loan agreement which will lighten the burden of public debt and ensure funding for years to come," Papademos said in a statement on Friday.

Recapitalising Banks

Debate has raged among Greek officials and politicians over issues ranging from how the Greek state will recapitalise the country's banks once the debt writedown is completed to state spending cuts and labour reforms that may reduce wages for private-sector employees.

Underlining the complexity of the task for Papademos, representatives of Greek employers and the country's biggest private sector union yesterday called on Papademos to resist pressure to cut the national minimum wage and holiday allowances.