Greece Strikes Tentative Deal Over Austerity Measures

Greek Prime Minister Lucas Papademos struck a tentative deal with political parties on Sunday over austerity measures demanded by international creditors as the terms for the release of its second, 130 billion-euro rescue package.

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Chiefs of the three parties supporting the interim government set a framework over the weekend for recapitalizing banks, also ensuring the viability of pension funds and reducing wages and non-wage costs to boost competitiveness. They also agreed to make additional reductions this year equal to 1.5 percent of gross domestic product

Chiefs were due to meet the premier midday to hammer out the details, but so far no deal has been reached. Leaders of the PASOK socialist party, the conservative New Democracy, and the far-right LAOS party still have to agree on unresolved problems, from labor market reform to shoring up domestic banks.

Papademos said after yesterday’s five-hour meeting that party chiefs had agreed to a set of measures that included wage cuts and other reforms as part of the spending cuts worth 1.5 percent of GDP, but Antonis Samaras, head of New Democracy, indicated that he would oppose some of the measures that the so-called troika of international creditors have put forward.

“They are asking us for greater recession, which the country can’t take,” Samaras said after the meeting on Sunday. “I will fight to avoid that.”

Greece is now in its fifth year of recession, and the prospect of another round of harsh austerity measures has Greece’s two main trade unions calling for a 24-hour strike on Tuesday in protest against policies they say have only driven the economy into a downward spiral.

But the troika — consisting of the European Central Bank, European Commission, and International Monetary Fund — has refused to yield on demands to cut the minimum wage, axe holiday bonuses, and fire public sector workers. New Democracy and LAOS have staunchly opposed wage and spending cuts, arguing that they risk precipitating an even deeper recession.

The current rescue blueprint includes a loss of more than 70 percent for private bondholders in a voluntary debt exchange and loans likely to exceed the 130 billion euros Greece is to receive from international lenders. A formal offer for the debt swap must be made by February 13 to allow all procedures to be completed in time for the troika to release the bailout funds before 14.5 billion in bond payments come due on March 20. Without the funds, Greece would be unable to make the payments and would enter into default.

But questions remain as to how much more aid Greece needs, how much more austerity is required, and how to involve the European Central Bank in the private-sector creditor debt swap.

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