Demonstrators take part in a protest rally of the Greek Communist party against new austerity measures in Athens. The capitalist bankers have attempted to impose further economic burdens on the workers and poor of the country., a photo by Pan-African News Wire File Photos on Flickr.
February 8, 2012 6:24 pm
Greek parties poised to agree cuts
By Kerin Hope in Athens, Peter Spiegel in Brussels and Ralph Atkins in Frankfurt
Leaders of Greece’s fractious national unity government were on the verge of approving tough new austerity measures on Wednesday night, one of the last hurdles to be cleared before eurozone officials can sign off on a €130bn bail-out and save Athens from a messy default.
The expected agreement, due at a meeting of Lucas Papademos, the technocrat prime minister, and the heads of the three Greek political parties in his cabinet, included €3bn in new spending cuts contained in a 50-page document distributed to political leaders in the morning. The full cabinet is due to rubber stamp the deal on Thursday.
The deal comes after mounting frustration in other European capitals, including Brussels, where officials had hoped to get a deal agreed last weekend so that they could quickly execute the central pillar of the deal – a €200bn bond swap that will see private Greek debt holders lose half their holdings, wiping €100bn off Athens’ €350bn debt pile.
Once the deal is agreed, the focus of the Greek drama will turn to Paris, where the lead negotiators for private bondholders were to meet with investors to begin preparations for the debt restructuring, and to Brussels, where eurozone finance officials will meet on Thursday to cobble together enough money to keep Greece afloat for the foreseeable future.
Debate over the structure of the new bail-out package continued to intensify behind closed doors as eurozone leaders attempted to construct a programme that would both keep the total in new rescue funds at €130bn and reduce Greek debt levels to 120 per cent of economic output by 2020.
Both those goals were signed off at a summit in October, but Greece’s worsening budget outlook has forced finance ministry officials to rework the package to stay within those parameters.
There was growing consensus that sufficiently reducing Greece’s debt level, which is now at about 160 per cent of economic output, would require more than the agreed €100bn cut in private debt, with leaders’ focus increasingly turning to the €40bn in Greek bonds held by the European Central Bank – the largest of any single investor.
According to several senior eurozone officials, the ECB has not yet agreed to help a revised bail-out plan, but it was studying whether it could forgo profits on the €40bn portfolio – which would pay out about €55bn if taken to maturity – by transferring the bonds to the eurozone’s bail-out fund, the European Financial Stability Facility, at the price it originally paid for them.
Another plan being considered would have Greece buying the bonds directly from the ECB at the depressed price, using EFSF funds or bonds to pay for them. Either scheme would require eurozone governments ensuring more EFSF funds to buy the Greek bonds – which may prove politically impossible.
While senior officials at EU institutions and eurozone member states were hoping the ECB would agree to forgo its profits, which would knock as much as €15bn off of Greece’s debt load, four officials with direct knowledge of the talks said such a deal had not yet been agreed.
Without ECB accession, officials worry it will be impossible to get Greece’s debt down to levels approved by the International Monetary Fund, which has estimated that the private debt restructuring alone will only get Athens’ debt to just under 130 per cent of economic output by 2020. Without IMF approval, the €130bn in new bail-out funds cannot be approved.
Standard & Poor’s, the debt rating agency, weighed in on the side of the IMF on Wednesday, saying the restructuring of privately held debt was not enough to make Greece’s debt load sustainable.
“Because only a small subcomponent of investors are actually taking the haircut and the official sector [ECB] is not, or only partially, then the reduction . . . is probably not sufficient debt relief to make debt sustainable,” said Frank Gill, an S&P analyst.
Although a deal in Athens was expected on Wednesday night, the heads of Greece’s two main political parties were still holding out for changes as they headed into the meeting with Mr Papademos.
Antonis Samaras, head of the centre-right New Democracy party and the presumptive next prime minister, argued that supplementary pensions should be subject to reduced cuts. Former premier George Papandreou, the socialist party leader, raised objections to cutting the 13th and 14th monthly salaries paid as a bonus to private sector workers.
The talks were expected to go late into the night. “They’re on the way to agreeing but it will take a few hours still,” said a government official.