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Breakthrough on Austerity Clears Way for Greek Deal

Thursday, 09 February 2012 03:26 By Rachel Donadio, Truthout | Report

Athens - After days of dramatic talks, Greek political leaders reached a deal on Thursday to support a package of harsh austerity measures demanded by Greece’s financial backers in return for the country’s latest bailout.

The deal is expected to unlock the 130 billion euros, or $172 billion, in new loans and save Greece from potentially disastrous default.

Talks between Prime Minister Lucas D. Papademos and the three leaders backing his coalition had stalled overnight over proposed cuts to pensions, but on Thursday leaders said they had found a way of plugging the 300 million euro shortfall by cutting defense spending and other expenditures.

“We have a deal,” a government official said Thursday afternoon. A statement by the prime minister was expected shortly.

At a news conference in Frankfurt, the head of the European Central Bank, Mario Draghi, said Mr. Papademos had called him with word that “an agreement has been reached and has been endorsed by the major parties” in Greece.

After more than seven hours, talks had stalled early Thursday between Mr. Papademos and the three political leaders in his government, who agreed on a range of steep wage cuts and public sector layoffs. But the politically unpopular pension cuts had proven most thorny.

Once the deal is finalized and the measures are approved by the Greek Parliament in the coming days, the lenders are expected to begin releasing to Greece the aid it needs to prevent a default when its next debt payment comes due on March 20.

The deal is also expected to pave the way for a bond swap under which private investors would take losses of as much as 70 percent — a deal that must be completed well before the debt comes due.

Mr. Draghi declined to comment on how Greek bonds held by the E.C.B. and national central banks would be affected under the terms of the swap, Reuters reported.

A Greek parliamentary vote on the full package of measures was scheduled for Sunday.

Finance Minister Evangelos Venizelos of Greece was to brief his counterparts in Brussels later Thursday.

Before leaving Athens, Mr. Venizelos had appealed to the political leaders for the umpteenth time, saying that their decisions “will determine whether the country remains in the euro zone or whether its place in Europe will be endangered.”

Even then, the line between Greek political theater and international financial trauma was difficult to discern. And after weeks of delays and threats from both sides — many of them empty — it was clear that the credibility of both Greece and its lenders was on the line.

The country’s two main labor unions called for a strike Friday and Saturday to protest the new proposed package of austerity measures. Union leaders said protest rallies would be held outside Parliament on both days of the strike and on Sunday during the vote.

After breaking talks with Mr. Papademos and issuing statements, the three political leaders had retired to their homes for the night about 2 a.m.

A little while earlier, while Mr. Papademos was holding talks with Greece’s foreign lenders, one of the three leaders participating in the government, George Karatzaferis, the leader of the Popular Orthodox Rally, issued a statement saying that he was unwilling to agree to the terms of the new bailout and indicating that he might withdraw from the government.

That would leave the burden of accepting the austerity measures on the other two parties in the coalition, the Socialists and the center-right New Democracy party.

The government official who confirmed the deal said that Mr. Papademos had communicated with Mr. Samaras, and that they had agreed on how to make up the shortfall. Local media said Mr. Papademos had not spoken with Mr. Karatzaferis.

Although Greece’s so-called troika of foreign lenders — the European Commission, the European Central Bank and the International Monetary Fund — have indicated that they will ask for written agreements from the party leaders that they will support the loan agreement, the government is still expected to be able to approve the agreement without Mr. Karatzaferis’s party.

Even if he does pull out of the coalition, the government will have a majority in Parliament, where the Popular Orthodox Rally has only 16 of the coalition’s 252 seats. With elections expected as soon as April, the parties are fighting for political survival.

The leaders appear to have agreed to one of the most unpopular austerity measures, a 22 percent reduction in the minimum wage, to 586 euros a month, according to an earlier statement by the prime minister’s office.

That cut is expected to affect all salaried workers, because the base wage is used as a benchmark by employers.

But the leader of New Democracy, Antonis Samaras, said the talks had foundered over cuts to pensions. Mr. Karatzaferis, whose populist, hard-right former opposition party has been losing ground with voters since it joined the government, said he would support Mr. Samaras to prevent proposed cuts to supplementary pensions..

Analysts suggested that the coalition partners were seeking to avoid blame for the agreement in hopes of leaving Mr. Papademos as the principal target of public anger.

Jean-Claude Juncker, the prime minister of Luxembourg, who heads a group of euro zone finance ministers, had scheduled a ministerial meeting for Thursday that he had previously said he would call only if Athens were ready to sign off on the plan.

Even that meeting would not be the final word. But it would allow for preparations for a bond swap under which private investors would take losses of as much as 70 percent, according to one person briefed on discussions who agreed to describe them only if the person were not identified.

Some details of the bailout remained unclear, but it appeared increasingly likely that the European Central Bank would agree to forgo at least some of its potential profits on Greek bonds, once the government in Athens had agreed to the austerity measures.

The first installment of the bailout was supposed to be an 89 billion euro segment in March, but officials are now saying that payment might be limited to about 30 billion euros to ensure that Greece continues to abide by the terms in coming months.

Landon Thomas Jr. contributed reporting from London.

This article, "Breakthrough on Austerity Clears Way for Greek Deal," originally appeared at The New York Times News Service.


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Breakthrough on Austerity Clears Way for Greek Deal

Thursday, 09 February 2012 03:26 By Rachel Donadio, Truthout | Report

Athens - After days of dramatic talks, Greek political leaders reached a deal on Thursday to support a package of harsh austerity measures demanded by Greece’s financial backers in return for the country’s latest bailout.

The deal is expected to unlock the 130 billion euros, or $172 billion, in new loans and save Greece from potentially disastrous default.

Talks between Prime Minister Lucas D. Papademos and the three leaders backing his coalition had stalled overnight over proposed cuts to pensions, but on Thursday leaders said they had found a way of plugging the 300 million euro shortfall by cutting defense spending and other expenditures.

“We have a deal,” a government official said Thursday afternoon. A statement by the prime minister was expected shortly.

At a news conference in Frankfurt, the head of the European Central Bank, Mario Draghi, said Mr. Papademos had called him with word that “an agreement has been reached and has been endorsed by the major parties” in Greece.

After more than seven hours, talks had stalled early Thursday between Mr. Papademos and the three political leaders in his government, who agreed on a range of steep wage cuts and public sector layoffs. But the politically unpopular pension cuts had proven most thorny.

Once the deal is finalized and the measures are approved by the Greek Parliament in the coming days, the lenders are expected to begin releasing to Greece the aid it needs to prevent a default when its next debt payment comes due on March 20.

The deal is also expected to pave the way for a bond swap under which private investors would take losses of as much as 70 percent — a deal that must be completed well before the debt comes due.

Mr. Draghi declined to comment on how Greek bonds held by the E.C.B. and national central banks would be affected under the terms of the swap, Reuters reported.

A Greek parliamentary vote on the full package of measures was scheduled for Sunday.

Finance Minister Evangelos Venizelos of Greece was to brief his counterparts in Brussels later Thursday.

Before leaving Athens, Mr. Venizelos had appealed to the political leaders for the umpteenth time, saying that their decisions “will determine whether the country remains in the euro zone or whether its place in Europe will be endangered.”

Even then, the line between Greek political theater and international financial trauma was difficult to discern. And after weeks of delays and threats from both sides — many of them empty — it was clear that the credibility of both Greece and its lenders was on the line.

The country’s two main labor unions called for a strike Friday and Saturday to protest the new proposed package of austerity measures. Union leaders said protest rallies would be held outside Parliament on both days of the strike and on Sunday during the vote.

After breaking talks with Mr. Papademos and issuing statements, the three political leaders had retired to their homes for the night about 2 a.m.

A little while earlier, while Mr. Papademos was holding talks with Greece’s foreign lenders, one of the three leaders participating in the government, George Karatzaferis, the leader of the Popular Orthodox Rally, issued a statement saying that he was unwilling to agree to the terms of the new bailout and indicating that he might withdraw from the government.

That would leave the burden of accepting the austerity measures on the other two parties in the coalition, the Socialists and the center-right New Democracy party.

The government official who confirmed the deal said that Mr. Papademos had communicated with Mr. Samaras, and that they had agreed on how to make up the shortfall. Local media said Mr. Papademos had not spoken with Mr. Karatzaferis.

Although Greece’s so-called troika of foreign lenders — the European Commission, the European Central Bank and the International Monetary Fund — have indicated that they will ask for written agreements from the party leaders that they will support the loan agreement, the government is still expected to be able to approve the agreement without Mr. Karatzaferis’s party.

Even if he does pull out of the coalition, the government will have a majority in Parliament, where the Popular Orthodox Rally has only 16 of the coalition’s 252 seats. With elections expected as soon as April, the parties are fighting for political survival.

The leaders appear to have agreed to one of the most unpopular austerity measures, a 22 percent reduction in the minimum wage, to 586 euros a month, according to an earlier statement by the prime minister’s office.

That cut is expected to affect all salaried workers, because the base wage is used as a benchmark by employers.

But the leader of New Democracy, Antonis Samaras, said the talks had foundered over cuts to pensions. Mr. Karatzaferis, whose populist, hard-right former opposition party has been losing ground with voters since it joined the government, said he would support Mr. Samaras to prevent proposed cuts to supplementary pensions..

Analysts suggested that the coalition partners were seeking to avoid blame for the agreement in hopes of leaving Mr. Papademos as the principal target of public anger.

Jean-Claude Juncker, the prime minister of Luxembourg, who heads a group of euro zone finance ministers, had scheduled a ministerial meeting for Thursday that he had previously said he would call only if Athens were ready to sign off on the plan.

Even that meeting would not be the final word. But it would allow for preparations for a bond swap under which private investors would take losses of as much as 70 percent, according to one person briefed on discussions who agreed to describe them only if the person were not identified.

Some details of the bailout remained unclear, but it appeared increasingly likely that the European Central Bank would agree to forgo at least some of its potential profits on Greek bonds, once the government in Athens had agreed to the austerity measures.

The first installment of the bailout was supposed to be an 89 billion euro segment in March, but officials are now saying that payment might be limited to about 30 billion euros to ensure that Greece continues to abide by the terms in coming months.

Landon Thomas Jr. contributed reporting from London.

This article, "Breakthrough on Austerity Clears Way for Greek Deal," originally appeared at The New York Times News Service.


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