New threat to bailout as Greek right rejects more austerity
ATHENS (Reuters) - Greece's conservatives vowed on Monday to reject any new austerity measures in return for the aid that is keeping Athens from bankruptcy, signaling a new coalition government may not enjoy the kind of cross-party support its lenders demand.
New technocrat Prime Minister Lucas Papademos said Greece had no choice but to remain inside the euro zone, telling lawmakers reforms were the only way to mitigate painful austerity measures which had deepened the recession.
Euro zone leaders are demanding the conservative New Democracy and its two coalition partners -- the Socialists and the right-wing LAOS party -- sign pledges that they will do what is necessary to make a new, 130 billion euro ($177 billion) rescue loan package work.
If they do not, Greece's international lenders have warned they will withhold an 8 billion euro aid tranche Athens needs to avoid running out of cash next month.
New Democracy leader Antonis Samaras said he would not sign any pledge for new belt-tightening.
He has said his party would support all the measures Greece has passed so far to meet the terms of its aid deal, but his support for the three-day old government has been lukewarm. The LAOS party has also objected to any new wage or pension cuts.
"I agree with the goals to cut government spending ... to reduce debt, to erase the deficit, to make structural changes. I do not agree with whatever stunts growth," he told party MPs.
Crucially, he said he would not sign a pledge of support for conditions on the new bailout agreement demanded by EU Economic and Monetary Affairs Commissioner Olli Rehn. Those terms have not yet been specified but may require new measures.
"I don't sign such statements," Samaras said, adding that his word should be sufficient.
His stance suggested a continuation of wrangling between New Democracy and the Socialists of fallen prime minister George Papandreou that last week pushed Greece to the brink and prompted EU peers to consider Greece's exit from the euro.
Opening a parliamentary debate that will culminate in a confidence vote on Wednesday, incoming premier Papademos urged the parties to commit to implementing the bailout's terms as agreed by euro zone leaders at a meeting last month.
"Our European partners and the international organizations that support us have made clear that further funding of Greece will continue only with the implementation of the terms... and the economic policies associated with them," Papademos told lawmakers.
"For this, the commitment of the government, and of the leaders of the parties that support it, is required."
Papademos, a former vice president at the European Central Bank, must convince Greece's aid sponsors that Athens is able to take further pain in return for the new bailout, which will also wipe out debt held by the private sector amounting to almost a third of its total 360 billion euro debt load.
Inspectors from the EU, the International Monetary Fund and the ECB, known as the "troika", were due to meet the new administration after Wednesday's confidence ballot but uncertainty surfaced over whether they would actually come.
Tens of thousands of people angry at more than a year of austerity measures are expected to rally on Thursday, the anniversary of a 1973 student uprising that helped bring down a 1967-1974 military junta.
The march could be the biggest in months of protests and would complicate discussions with the troika by shutting down Athens, particularly as previous rallies have turned violent.
Greek public sector workers also vowed to walk off the job for three hours on Tuesday in protest against measures to cut jobs, salaries and pensions passed in October, while private sector union GSEE is considering nationwide strikes later in the month when the budget is to be voted on in parliament.
"They may come at the end of the week but nothing is fixed," a spokesman for the European Commission's mission in Greece said of the troika team, which only last Friday had been slated to arrive early in this week.
Without a positive report from the inspectors, the lenders may withhold the key aid tranche Athens needs by mid-December to pay off bond redemptions and avert bankruptcy.
MARKETS LOCKING UP
A similar scenario played out in Italy, where Silvio Berlusconi's technocrat replacement, former European Commissioner Mario Monti, worked to create a new administration and halt a collapse in market confidence in Rome.
But the appointments of both Papademos and Monti failed to quell fears of a possible Greek default or break up of the euro zone. Equity markets and the euro slid in global trading.
BlackRock, one of the world's largest asset managers, said debt restructuring in Greece, Portugal and Ireland should include losses of 75 percent to 80 percent for private bondholders -- above the 50 percent envisioned in Greece's rescue package -- to help stop a global meltdown.
"Governments are falling, bond yields are zig-zagging by whole percentage points and markets around the world are locking up: the euro zone turmoil risks turning into a global crisis," it said in a research note.
Greece made marginal progress in a drive to sell state assets to raise funds, earning 380 million euros in the sale of mobile phone frequencies. It was a fraction of the 50 billion pledged in privatizations through 2015, but was still a start.
If Athens continues to slip in its revenue and spending targets -- as it has repeatedly -- or the economy weakens, the troika would have to suggest further tough measures.
Sworn in on Friday, Papademos said reforms tied to Greece's bailout package had worsened a recession that is in its fourth year and hit unemployment, which rose to a euro era record 18.4 percent in August.
He said new reforms could help remedy this problem, but he stressed the coalition parties first had to commit to fulfilling their part of the bailout in writing.
"This request must not be seen as a demand made by faceless powers and organizations," he said.
"The requested pledge expresses the demand and the expectation of the peoples and the taxpayers who are backing us, because it's they who are assuming the risks and the obligations that will possibly arise if we fail to achieve fiscal restructuring."
(Writing by Ben Harding and Michael Winfrey; Editing by Jon Boyle and Kevin Liffey)
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