Greek leaders push back decision on austerity cuts

ATHENS Wed Jul 18, 2012 2:12pm EDT

Greek Finance Minister Yannis Stournaras (R) and his alternate minister of finance Christos Staikouras leave the Prime Minister's office in Athens July 17, 2012. REUTERS/John Kolesidis

Greek Finance Minister Yannis Stournaras (R) and his alternate minister of finance Christos Staikouras leave the Prime Minister's office in Athens July 17, 2012.

Credit: Reuters/John Kolesidis

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ATHENS (Reuters) - Greek coalition leaders agreed to meet next week to hammer out almost 12 billion euros worth of austerity cuts demanded by the near-bankrupt country's lenders after a deal proved elusive at an initial round of talks on Wednesday.

Greek officials have spent the past week scrambling to identify the savings for 2013 and 2014 before European and IMF officials visit next week and decide whether Athens merits another tranche of aid from its latest bailout package.

But final agreement on the cuts is expected only after much bargaining among the three party leaders in the conservative-led government, each of whom is keen to avoid appearing in favor of cuts that heap more misery on austerity-weary voters.

"We had a very good discussion," Finance Minister Yannis Stournaras told reporters after a three-hour meeting between Prime Minister Antonis Samaras and his two coalition allies.

"We agreed on the basic direction."

Samaras's allies - Socialist party leader Evangelos Venizelos and leftist party chief Fotis Kouvelis - emerged after the meeting to reiterate that there would be no new spending cuts this year beyond those already agreed.

Both leaders, who have championed reducing the painful austerity diet of wage and pension cuts, said little about their discussion on future spending cuts other than to say talks would resume in the coming days.

One senior party official said some ministries failed to submit their proposals for cuts ahead of Wednesday's meeting, delaying efforts to finalize them. Only about half of the promised 11.7 billion euros of spending cuts had been identified in the run-up to the meeting, an official said this week.

Clinching agreement on the unpopular cuts is likely to be Samaras's first major test since assuming power last month. His government has made a positive first impression on European partners abroad, but has angered critics at home who accuse it of not pushing aggressively enough for changes to the bailout.

The nascent government has said it will seek an additional two years to hit fiscal targets included in the bailout, but plans to push for that only after regaining lost credibility by getting its reform program back on track.

UNNATURAL BEDFELLOWS

In a sign that Samaras's softer approach to lenders could risk the ire of his allies, both Venizelos and Kouvelis stressed the need to decisively push for an overhaul of the unpopular 130-billion bailout package.

"The first target, as we have repeatedly said, is to extend the period of fiscal consolidation," Venizelos said, adding that party leaders would also meet on reforms and privatizations in the coming days.

Analysts said talks on the cuts will likely shine a spotlight on the weaknesses of Samaras's fragile coalition, which few expect will last through its full term.

"It's a really big test for the government given that they're not natural bedfellows in a political sense. I think it will be pretty difficult to agree on the ways to cut spending," said Ben May, analyst at Capital Economics.

"They've often suggested pretty different options. In that sense it would be a surprise if they had reached agreement."

Even if they managed to overcome their own differences, Samaras's government must face down an increasingly emboldened opposition in the form of radical leftist group Syriza.

"They are lying when they say there will be no new measures," Syriza leader Alexis Tsipras said. "There will be and they will be catastrophic for the Greek people. This government obeys the troika and does not protect the people."

Identifying and backing the spending cuts in the face of such protests will be key to appeasing the so-called troika of EU, ECB and IMF lenders, who have repeatedly warned Athens will get no further cash unless it learns to live up to its pledges.

EU officials have indicated they will find the money to see Greece through a bond payment in August, but the country risks running out of money soon afterwards without further aid.

The cuts, equivalent to 5.5 percent of the country's GDP, are aimed at narrowing Greece's budget deficit to below 3 percent of GDP by the end of 2014 from 9.3 percent in 2011.

They are expected to include reductions to welfare benefits, and lower spending on health and defense as well as savings from a crackdown on fraud and the slashing of expenses in the public sector.

Promised under the bailout agreed earlier this year, the cuts were originally due to be finalized in June but discussion was delayed after Greece was forced to hold a second election last month.

Entirely dependent on foreign aid to keep the state running, Greece is struggling through its fifth year of recession. Nearly one in four Greeks are out of work, and thousands of businesses have put up their shutters due to the country's debt crisis.

Delays from repeat elections this year have made the country fall further behind targets in its fiscal adjustment program, hurting its efforts to win concessions from lenders.

(Reporting by Renee Maltezou and Karolina Tagaris; writing by Deepa Babington; editing by Stephen Nisbet)

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