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Greeks hold crunch austerity talks amid aid threat

28 May 2011 04:02 (UTC +04:00)

Baku â€“ APA. Greece’s prime minister held talks with opposition leaders on Friday in a last-ditch attempt to win their support for more austerity and free up EU/IMF aid needed to avert a debt default, APA reports quoting â€œReutersâ€.
Financial markets were spooked on Thursday when Jean-Claude Juncker, who chairs meetings of euro zone finance ministers, warned that the International Monetary Fund could withhold its contribution to a 12 billion euro aid tranche Greece needs next month to service its massive debt mountain.
But the spread between Greek 10-year bonds and German benchmarks edged back below the 14 percent mark on Friday, suggesting some hope that a compromise could be sealed.
Analysts say if debt markets were pricing in a Greek default, they would have reacted considerably more violently.
"This is not a done deal but we can see a scenario in which the stars align," Jacques Cailloux, a European economist at RBS in London, told Reuters.
"Obviously there are risks, there is a lot of noise from people who are not decision makers. It feels like it’s going in the right direction though. There is not much choice. The alternatives to further aid to Greece are all sub-optimal."
Greek Prime Minister George Papandreou’s socialists enjoy a comfortable majority in parliament but EU policymakers are demanding that Athens secure broad political backing for new debt-cutting measures if they are to provide extra cash to plug a 27 billion euro funding gap next year.
Conservative opposition leader Antonis Samaras has vowed to fight the policies and Papandreou also faces resistance from members of his own party and powerful unions.
Without a credible political consensus, EU aid guarantees for next year are unlikely. Failing assurances from Europe on Greece’s 2012 funding needs, the IMF is resisting payout of its 3.3 billion euro slice of the June tranche.
Deputy Prime Minister Theodoros Pangalos said he did not expect Samaras to reverse his opposition to the EU/IMF memorandum, but that some progress could send the message of unity required.
"I believe that we could agree on a series of things ... to send a message abroad," Pangalos told Greek Flash radio on Friday. "Today’s meeting could result in some convergence."
He gave no more details of what the parties could agree on.
Greece’s finance minister has warned that without the new funds, the country -- which faces a 13.4 billion euros funding crunch soon -- would be unable to meet its obligations and would default.
In addition to Samaras, who heads the New Democracy party, the meeting on Friday will include the leaders of the communist KKE party, which often boycotts such events, the far-right LAOS party and the Coalition of the Left.
BRINKMANSHIP?
U.S. President Barack Obama told European counterparts at a summit in France that he backed efforts to tackle the crisis and underlined Washington’s interest in officials successfully dealing with the problems.
Juncker on Thursday warned European countries could not be counted on to step up and fill the gap left by the IMF if it decided against releasing its portion of the June aid tranche.
"That won’t work because in certain parliaments -- Germany, Finland and the Netherlands and others, too -- there is no preparedness to do so," he said.
Some analysts saw Juncker’s comments as an act of brinkmanship to press Greek political leaders to form a consensus on austerity measures, revenue increases and privatizations designed to get the country’s 2010 bailout program back on track.
But they also appeared to reflect a tug-of-war between the global lender and major EU creditors, led by Germany, over a further multibillion-euro aid package for Athens.
"There is enormous pressure on Greece to resolve this," European Central Bank Governing Council member Nout Wellink was quoted as saying by news agency Bloomberg.
"It is difficult. I’m fully confident that in the end, Greece will meet the conditions, meaning that only then the IMF and Europe can say "yes’."
A mission from the so-called troika -- European Commission, the ECB and IMF -- is currently in Greece and assessing how sustainable its debts are.
At roughly 330 billion euros, or 150 percent of gross domestic product (GDP), many economists believe the country’s debt will inevitably have to be restructured eventually.
European policymakers have promised that they will not consider a coercive restructuring that hits private holders of the debt before 2013 and appetite for a "voluntary" maturity extension before then appears to be fading.
All three major ratings agencies have said adjusting debt maturities would be considered a default-like "credit event," triggering a chain reaction of consequences for Greece’s credit rating, Greek commercial banks and companies, and potentially other euro zone sovereigns.
Another ECB Governing Council member, Mark Kranjec of Slovenia, said on Friday that there should be no talk of a Greek restructuring until the country had balanced its budget.
The comments echoed those made by German Chancellor Angela Merkel earlier this week, in which she said Greece must be given time to return to a primary surplus.