Papademos Seeks Accord on Cuts

Greek political leaders work to meet requirements for bailout.

Greek Prime Minister Lucas Papademos plans to convene the nation’s political leaders to seek consensus on the cuts required for a bailout as unions called a strike to protest and European leaders pressed for answers.

While Papademos and the party chiefs have agreed to make further cuts this year equal to 1.5 percent of gross domestic product, they have yet to close gaps over measures demanded by creditors for a 130 billion-euro ($171 billion) rescue. German Chancellor Angela Merkel said “time is running out,” while unions derided the conditions as “blackmail.”

“It is clear we are going into another drama for Greece with many questions unanswered,” Patrick Legland, head of research at Societe Generale SA, told Bloomberg Television today. “It’s kind of a catch-22 where they have to reduce their deficit but there is no growth. It’s very tricky.”

At stake is whether Greece wins the bailout, secures a debt writeoff with private creditors and remains in the euro region. Finance Minister Evangelos Venizelos told reporters late yesterday that “failure of these talks, failure of the plan, the country’s bankruptcy, means even greater sacrifice.”

The euro fell 0.1 percent to $1.3123 as of 1:05 p.m. in Athens as investors await the outcome of the Greek talks. The Stoxx Europe 600 Index slipped 0.5 percent and the Euro Stoxx 50 also dropped 0.5 percent.

The country raised 812.5 million euros in a sale of 26-week Treasury bills today, a sale held a week earlier than usually scheduled to allow for the rollover of 26-week bills due on the Feb. 10. The yield fell to 4.86 percent from 4.9 percent in the last sale of such bills on Jan. 10

Short-term debt sales are the only source of market financing available for the nation. Bonds repayable in 2022 are worth about a third of their face value.

Greek political leaders have yet to resolve issues from recapitalizing banks, ensuring the viability of pension funds and reducing wages and non-wage costs to boost competitiveness. Greece still needs to agree on 600 million euros of fiscal measures for 2012, a government official told reporters in Athens yesterday. Meantime, unions called their first general strike of the year.

Papademos met overnight with representatives from the European Commission, the European Central Bank and the International Monetary Fund to continue talks on possible spending cuts.

 

‘Great Sacrifices’

“The salvation of the country, remaining in the euro, means great sacrifices,” Venizelos told reporters in Athens late yesterday after his meeting with the so-called troika of representatives. He described the talks in Athens as a “Hydra’s head,” a reference to the monster in Greek mythology that grew back more heads than the one cut off.

Venizelos met again today with the officials ahead of the meeting of political leaders. Papademos hasn’t yet set a time for the meeting with leaders.

With the country set to pay a 14.5 billion-euro bond due on March 20, Merkel said in Paris that “I can’t quite understand why we need a few more days.” French President Nicolas Sarkozy said there could be no funds without reforms. Allowing Greece to go bankrupt “isn’t an option,” he said.

Greece’s efforts to win a second bailout from the troika have hung in the balance over the past four days as negotiations in Athens failed to clinch an agreement on measures demanded by lenders, which could include a cut in the minimum wage, lower pensions and immediate layoffs for state employees.

Citigroup Inc. raised the probability that Greece will be forced to leave the euro area in the next 18 months to 50 percent from 25 percent to 30 percent previously.

“To remain in the euro area, the Greek government needs to exhibit a minimum degree of compliance with the fiscal and structural conditions of the bail-out program,” the firm’s chief economist, Willem Buiter, said in an e-mailed note. “The hurdles for Greece set by euro area negotiators to receive the second bail-out are high.”

Adding to pressure on Papademos and political leaders, the biggest public-sector and private-sector union groups, ADEDY and GSEE, held a 24-hour general strike today, shutting down government services, courts, schools and ferry services. Dockworkers and bank employees also walked off the job while a walkout by culture ministry workers forced the closure of museums and other tourist attractions.

 

‘Cynical Blackmail’

“What is taking place isn’t a negotiation,” GSEE president Yannis Panagopoulos said in an e-mailed statement. “It’s raw, cynical blackmail against a whole people.”

Police estimated the number of protesters who marched through rain to Parliament House in the center of the city at about 10,000. No violence was reported.

Administration Minister Dimitris Reppas said the troika asked for 15,000 state jobs to be cut this year, part of plans by Greece to gradually phase out 150,000 employees by the end of 2015. He told Athens-based Mega TV he was opposed to “blind firings.”

The troika argues that lower wage costs is among the reforms necessary to boost competitiveness in the country. Those opposed say the cuts would deepen the country’s recession, now in its fifth year.

Antonis Samaras, the head of the second-biggest party, New Democracy, has indicated he will oppose measures that will deepen the country’s downturn.

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 will stick to pledges made now to receive financing.

The rescue blueprint includes a loss of more than 70 percent for bondholders in a voluntary debt exchange that will slice 100 billion euros off 200 billion euros of privately-held Greek debt 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.

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.

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. 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.

 

Bloomberg News


 

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