European leaders stepped up pressure on Greek politicians to accept the conditions for a 130 billion-euro ($171 billion) bailout, saying time was running out.
French President Nicolas Sarkozy met German Chancellor Angela Merkel in Paris today as Greece’s interim prime minister, Lucas Papademos, and chiefs of the three parties supporting him sought to find consensus in Athens. They agreed in a five-hour meeting yesterday to make additional reductions this year equal to 1.5 percent of gross domestic product.
“I can’t quite understand why we need a few more days -- time is running out,” Merkel said today in a joint briefing with Sarkozy.
With the country’s stability at stake, the accord marked a step forward as Athens played host to parallel negotiations over the weekend to secure the domestic consensus needed to win a second bailout while persuading Greece’s private creditors to accept bigger writedowns on their debt holdings.
“An agreement has never been so close, neither for private nor public creditors,” Sarkozy said. “We have to conclude it. We can’t imagine there won’t be an agreement.”
The leaders of Europe’s two biggest economies proposed setting up an account for Greece’s interest payments to guarantee lenders are paid.
Euro-area finance chiefs told Greek Finance Minister Evangelos Venizelos in a Feb. 4 conference call that an increase in the bailout package wasn’t forthcoming, underscoring their frustration at a lack of progress on fixing the economy. The effort to keep Greece from tumbling into default presents what Deutsche Bank AG Chief Executive Officer Josef Ackermann called a “make or break” moment.
The euro fell amid the political wrangling, losing 0.7 percent to $1.3071 as of 2:46 p.m. in Athens.
Papademos was meeting the three party leaders today to hammer out the details of the measures. Antonis Samaras, the head of the second-biggest party, New Democracy, indicated he would oppose some measures that the so-called troika of international creditors have put forward.
“They are asking us for greater recession, which the country can’t take,” Samaras said as he left the meeting with Papademos. “I will fight to avoid that.”
Greece’s biggest public-sector and private-sector union groups, ADEDY and GSEE, called a 24-hour general strike for tomorrow to protest austerity measures.
Greece’s efforts to win a second bailout from the troika -- the European Commission, the European Central Bank and the International Monetary Fund -- have hung in the balance over the past three days as negotiations in Athens failed to clinch an agreement. Venizelos said on Feb. 4 the talks were on a “razor’s edge.”
Facing a 14.5 billion-euro bond payment on March 20 and general elections as soon as April, Papademos must heed international demands for greater austerity to complete the talks on a second aid package in time. 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 private-sector creditor debt swap.
Guarantees from Greek political leaders such as Samaras, who leads in opinion polls, are key to securing the funds from the EU and IMF. International lenders want assurances that whoever wins the next election, which could be held in April, will stick to pledges made now to receive financing.
George Papandreou, the former prime minister who still leads the Pasok socialist party, the biggest in the Greek parliament, held talks with party members after the meeting to discuss the party’s response.
In a letter sent separately to Papademos, he proposed that Papademos’s mandate be extended to boost confidence among lenders the pledges will be implemented. That is an option likely to be opposed by Samaras, who has called for elections as soon as the new financing is agreed.
Agreement on a new plan, which includes a writedown of Greek debt held by private creditors, has been held up by insistence on the part of the EU and IMF on structural reforms that will underpin a return to competitiveness for the Greek economy as well as new fiscal measures for this year.
The rescue blueprint includes a loss of more than 70 percent for bondholders in a voluntary debt exchange and loans that will probably exceed the 130 billion euros now on the table. A formal offer for the debt swap must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due.
“One thing is clear: the Greek drama continues to unfold,” Joachim Fels, chief economist at Morgan Stanley wrote in a note yesterday. “A really, really bad scenario for the euro area -- a Greek default and departure from the euro area -- simply cannot be excluded.”
Greece has lagged behind budget targets set when it won an initial, taxpayer-funded rescue of 110 billion euros in May 2010, prompting euro-area threats to cut off aid and hastening a German push to make bondholders contribute. The country’s economy shrank 6 percent last year, according to the most recent IMF estimates, the budget deficit is still close to 10 percent of GDP and unemployment is about 18 percent.
Even after a second bailout, Greece may be saddled with too much debt, too little growth and too large a budget hole to do without even more money, which euro nations led by Germany are increasingly reluctant to offer.
The troika wants the country to detail over 4 billion euros of measures to meet targets for 2011 and 2012 because wage cuts will deepen the recession and cause a shortfall this year, one government official told reporters in Athens.
The troika argues that cutting private-sector holiday allowances is among reforms necessary to boost competitiveness in the country. Those opposed say the cuts would deepen the country’s recession, now in its fifth year.
Papademos met yesterday with the lead negotiators on the debt accord with Greece, Charles Dallara, managing director of the International Institute of Finance, and Jean Lemierre, a senior adviser to the chairman of BNP Paribas SA. The debt swap, Venizelos said on Feb. 4 “is now the easiest part of the process.”
Creditors are prepared to accept an average coupon of as low as 3.6 percent on new 30-year bonds in the exchange, said a person familiar with the talks, who declined to be identified because a final deal hasn’t been struck yet.