By Lefteris Papadimas and John O'Donnell
ATHENS/BRUSSELS Feb 8 Prospects for a
deal on a second international bailout for Greece brightened on
Wednesday when euro zone finance ministers were summoned to
talks in Brussels while Greek political leaders met to approve a
tough new reform and austerity programme.
Eurogroup chairman Jean-Claude Juncker invited ministers
from the 17-nation single currency area to meet on Thursday
evening and the International Monetary Fund said managing
director Christine Lagarde would also attend.
They are expected to examine a complex package involving a
130 billion euro EU/IMF rescue and a bond swap with private
creditors, which hinges on Athens accepting conditions that
require big cuts in many Greeks' living standards.
Greeks face a dreadful year of recession, a government
source said. Athens now forecast the economy will shrink between
four and five percent in 2012, the source said, adding to a
relentless dive in economic output for the last four years which
has sent unemployment soaring.
The figure, contained in a draft letter to Lagarde, is far
worse than the 2.8 percent fall in gross domestic product
forecast when the 2012 budget went to parliament in November,
highlighting the conundrum that more austerity will damage the
economy further and drive Greece's massive debts yet higher.
Juncker called the Eurogroup meeting even though leaders of
the three Greek coalition parties were still discussing with
Prime Minister Lucas Papademos the terms of a rescue package to
avoid a chaotic default in March that would send tremors around
the euro zone and possibly further afield.
Two sources close to the Athens talks said the government
would promise spending cuts and tax rises totalling 13 billion
euros from 2012 to 2015, almost double the seven billion it
The bailout package also pledges a 22 percent cut to the
minimum wage level, a party official said.
International lenders are demanding that the leaders of the
conservative New Democracy party, PASOK socialists and far-right
LAOS commit themselves in writing to implement the programme of
pay and pension cuts, structural and administrative reforms.
Euro zone officials say the full package must be agreed with
Greece and approved by the euro zone, European Central Bank and
IMF before Feb. 15 so that complex legal paperwork can be
completed in time for a bond redemption deadline on March 20.
However, the leaders have been loath to accept the lenders'
tough conditions, which are certain to be unpopular with voters,
as they face parliamentary elections possibly as early as
After a series of delays, the leaders finally received a
15-page document on Wednesday morning laying out the principles
of the bailout and its conditions, a party official told
Reuters. Attached were a further 30 or so pages laying out how
the programme will be implemented.
The leaders will have to decide whether to push through a 15
percent cut to supplementary pensions or a combination of cuts
in main and supplementary pensions, the official said.
Other elements of the deal have been gradually slotting into
place, including a bond swap with private creditors to ease
Greece's debt burden by reducing the value of government bonds
held by banks and insurers.
The new bonds would have an average interest rate of around
3.5 percent, said state NET TV, with creditors having to swallow
a 70 percent cut in the value of their debt holdings.
Private holders of Greek debt will discuss the debt swap
plan aimed at slashing the country's debt pile in Paris on
Thursday, a banking official told Reuters.
German Deputy Finance Minister Thomas Steffen said in Berlin
the bond swap offer to private creditors could be made as early
as next week.
He voiced exasperation at Greece's failure to implement
economic and fiscal reforms since the debt crisis erupted two
years ago, saying governance remained below European standards.
"I believe we can say today that we have made little
progress on Greece since 2010, worryingly little progress,"
Ratings agency Standard & Poor's said Greece would likely
fail to achieve sustainable debt levels if it relied on a 70
percent reduction in the value of bonds held by private
creditors, putting the onus on the ECB to also take losses.
"The reduction ... is probably not sufficient to make the
debt sustainable, given the outlook for GDP itself," S&P analyst
Frank Gill said.
With banks and insurers having mostly agreed to take a hefty
writedown, Athens and the commercial banks are urging the ECB to
forego profits on its Greek bond holdings to help cut the debt
to a sustainable level. That could raise 12 billion euros or
But ECB policymakers are still divided on what contribution
the bank could make to a restructuring of Greek debt, two euro
zone monetary policy sources said.
While the ECB has ruled out joining private creditors in
voluntarily accepting losses on its Greek bonds, it could
provide indirect relief by renouncing profits from bonds it
bought at below face value.
The ECB's 23-member Governing Council, which holds a regular
monthly meeting on Thursday, has yet to agree a position. Some
policymakers are reluctant to share the burden for fear of
easing pressure on Athens to agree spending cuts. There are also
concerns about setting a precedent for other countries.
"There is no agreement yet. Some people on the Council still
oppose this," said one monetary policy source, adding that ECB
President Mario Draghi had not yet revealed his position.
An opinion poll on Wednesday showed that PASOK, which ruled
Greece until Papandreou's government collapsed last November,
has most to fear from elections. The monthly survey by Public
Issue for Kathimerini newspaper showed support for PASOK had
collapsed to eight percent from the nearly 44 percent it
commanded when it returned to power in 2009.