Greek PM warns of default without loan deal

Greek PM warns of default without loan deal
# 05 January 2012 02:39 (UTC +04:00)
Baku-APA. Greece’s Prime Minister urged defiant union leaders Wednesday to accept further income losses, warning that vital international rescue loans could otherwise dry up and force the debt-crippled country into a disorderly default in March, APA reports quoting Associated Press.

Lucas Papademos said decisions made over the next few weeks before a mid-January visit by international debt inspectors, known as the troika, will determine whether the country holds onto the euro or reverts to its pre-2002 currency, the drachma.

Greece has been subsisting on a euro110 billion bailout from its European partners and the International Monetary Fund since May 2010, and in return has imposed deeply resented austerity measures. The country is negotiating to finalize the details of its second international bailout, for euro130 billion ($169 billion).

"Without the agreement with the troika and the resulting funding, Greece faces an immediate danger of disorderly default in March," Papademos told union leaders and employers’ federations, according to a transcript provided by his office.

"If we want to secure our most significant achievements — participation in the euro and avoidance of a massive, vertical income devaluation that a disorderly bankruptcy and exit from the euro would lead to ... then we must accept a short-term income reduction," he said.

But the country’s biggest labor union, the GSEE, ruled out any further income losses saying Greeks had suffered enough from two years of harsh austerity.

Greece took the first bailout after sky-high borrowing costs caused by its runaway budget deficit and huge public debt blocked its access to money markets. The previous, Socialist government then slashed pensions and salaries and repeatedly hiked taxes — sparking a string of general strikes and often violent demonstrations.

Largely as a result of the cutbacks, the economy became bogged down in a deep recession — expected to stretch on for a fourth year in 2012 — while unemployment reached 17.5 percent in September.

The second bailout was agreed to in October after it became clear that the first batch of loans would not suffice. That deal also called for a euro100 billion writedown of the country’s privately held debt, in a bid to restore debt sustainability. The country’s debt-to-GDP ratio is currently the highest in the European Union at more than 160 percent in 2011, and the writedown would reduce it to about 120 percent by 2020.

Papademos said the troika has called for a re-examination of labor costs, to boost lagging competitiveness and fight high unemployment, and warned that, unless significant action is taken, the country will not receive its next vital installment.

"If we do not make the necessary adjustments, it is to be taken for granted that we cannot expect that the other EU countries and international organizations will continue to finance a country that does not adjust to reality and does not tackle its problems," he said.

Immediate union response was chilly.

After talks with Papademos, GSEE chief Yiannis Panagopoulos insisted that the national collective wage agreement, which includes minimum wage provisions and those of holiday pay known as the 13th and 14th salaries, was not up for negotiation. The extra two salaries per year have been slashed in the public sector as part of austerity measures.

"Workers and pensioners have shouldered a disproportionately high burden of the crisis, and now have no more leeway for further cutbacks and reversals in labor relations," a GSEE statement said.

Papademos also met with Hellenic Federation of Enterprises head Dimitris Daskalopoulos, who said his industry federation would do "whatever it can" to ensure the minimum wage is not lowered.

Troika officials are due in Athens on Jan. 15.

"With the beginning of 2012 we enter the most critical period for the course of the Greek economy," Papademos said. "The coming few weeks will be extremely crucial."

Key details of the second bailout deal are still being negotiated — above all the provision under which private creditors such as banks and investment firms would take a 50 percent cut in the face value of the Greek bonds they hold.

Greece has to implement the haircut ahead of the March 20 maturity date of euro14.4 billion worth of bonds. Athens would not be able to make the repayment without the second bailout, while the bond writedown would also reduce and delay the amount that would be due.

The Institute of International Finance, which has been leading negotiations on behalf of Greece’s private creditors, said late Tuesday that some progress had been made in the discussions in recent days. However, indicating the urgency of finding a solution, the IIF stressed a deal had to be found "in the days ahead."

Panagopoulos, the labor chief, told journalists that Papademos was upbeat on the course of the talks and expected an agreement later this month.

"(Papademos said) negotiations with representatives of our creditors on the writedown are going well, that there will be an agreement within the next fifteen days but an extra month will be required for its implementation," Panagopoulos said.

Negotiating the details of the second bailout and ensuring Greece gets the funds is the main mandate of the temporary coalition government headed by Papademos, a former central banker appointed in November after a political crisis forced Socialist prime minister George Papandreou to resign.

On Wednesday Papandreou told a top party meeting that he will not seek re-election as Socialist leader, according to party officials. The son and grandson of Greek prime ministers, Papandreou won a landslide victory in October 2009 with promises to increase the incomes of low-earning workers and pensioners, just before Greece slipped into its crippling economic crisis.

Papandreou also pledged to boost tax revenues, famously claiming that "the money is there" to be collected. But his government failed to meet revenue targets despite raising the top sales tax bracket to 23 percent and imposing a hugely unpopular property tax that punishes noncompliant households by cutting off their power supply.