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Teetering Greece says debt deal pending

Feb. 8, 2012 at 2:30 AM   |   Comments

ATHENS, Greece, Feb. 8 (UPI) -- Greece struggled to retain credibility after missing a third debt-deal deadline but vowed an accord was near amid a European concession to cut Greece's debt.

An agreement on a "final draft document" of new draconian austerity measures on top of earlier ones would "almost certainly" be finalized Wednesday when technocrat Prime Minister Lucas Papademos and the three party leaders of Greece's national unity government meet, officials said.

They had promised to clinch the deal Tuesday but didn't even get together.

"There are outstanding technical issues, but when they meet [Wednesday] we can expect the politicians to accept it," a key official told the British newspaper The Guardian after Tuesday's talks were postponed.

"Part of the reason why the discussion is also taking longer is that the leaders have to come to terms with what they have to accept."

Athens must accept European Commission, European Central Bank and International Monetary Fund demands for immediate, bitingly deep spending cuts and labor reforms for Greece to qualify for a needed $170 billion rescue package if it is to avoid default on a $19 billion bond repayment it otherwise can't pay March 20.

The EC, ECB and IMF -- the "troika" that organized the financial rescues of Greece, Ireland and Portugal -- said their demands must be worked out before a Thursday eurozone finance ministers meeting if Greece wants to get the money in time to avoid a government default.

The Greek Parliament scheduled a vote on the measures this weekend.

Economists and politicians have said a Greek default would have disastrous effects, spreading like a contagious disease to Portugal, Italy and possibly other countries.

U.S. Federal Reserve Chairman Ben Bernanke said the central bank would "take every available step to protect the U.S. financial system and the economy" from the contagion.

Athens agreed Monday to cut 15,000 state jobs this year and to reduce the minimum wage 20 percent, even as the economy is forecast to contract.

The government has promised to eliminate 150,000 public-sector jobs altogether, or 20 percent of all public-sector jobs, by 2015, even though the constitution protects state workers from being fired.

Greek officials also agreed to $4 billion in healthcare, defense and local government cuts over two years, but still disagreed over another $1.6 billion in cuts.

As the politicians struggled over the additional cuts -- with a general election looming as early as April -- the country's public and private sectors ground to a halt Tuesday as unions called a 24-hour nationwide strike over wage, pension and job cuts.

In addition, more than 10,000 people in Athens demonstrated in heavy rain against the cuts. Buildings were spray-painted with slogans including "Rise Up, People" and "We Won't Be Their Slaves."

Riot police moved in firing teargas after demonstrators tried to burn a German flag.

Anti-German sentiment is growing as many in Greece blame harsh German demands for exacerbating Greece's economic woes, The Guardian said.

European Commission Vice President Neelie Kroes expressed growing frustration with Greece, telling the Dutch daily de Volkskrant the eurozone should simply cut its losses and let Greece fall into bankruptcy.

"It is absolutely not a case of man overboard if someone leaves the eurozone," she said.

But EC President Jose Manuel Barroso, who is also co-EU president, appealed for continued international support for Greece, arguing the cost of a default "would be much higher than the costs of continuing to support Greece."

While Athens debates troika demands, it is also negotiating with private lenders and bondholders on a plan to swap old bonds for new ones at a considerably lower interest rate, saving Greece an estimated $130 billion in debt.

As part of those talks, the ECB made a conditional concession that could cut Greece's debt $16 billion and help pave the way for a private-sector deal, The Wall Street Journal reported.

The ECB agreed to exchange Greek government bonds at or only slightly above the below-face-value price it paid for the bonds last year, provided Greece's debt-restructuring deal finds "a successful outcome," the newspaper said.

It would exchange the Greek bonds for bonds of the European Financial Stability Facility, the eurozone's temporary bailout fund.

The EFSF would return the bonds to Greece and Greece would repay the EFSF for the bonds' original purchase price, cutting its debt as much as $16 billion.

Greek state broadcaster ERT reported early Wednesday a deal to write down the country's private-sector debt was close to completion.

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