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Greek coalition, creditors face showdown

Jun 25 2012 07:55 AFP

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Athens - Greece's new three-party coalition heads for a showdown this week with a troika of international creditors - the European Union, Internationl Monetary Fund (IMF) and European Central Bank (ECB) - over its bid to revise an austerity-centred bailout.

The new conservative-led government, backed by socialists and moderate leftists, debuts with creditor auditors arriving to determine how much - or little - has been done and whether to disburse much-needed loans.

The cabinet has been hit by a wave of health troubles just days after coming to power. But it has set out demands ahead of a crucial EU summit on Thursday and Friday, including calls for a two-year extension for applying structural reforms, to 2016.

Greeks took to the polls last week for the second time in two months to vote in their first elected government since the crisis exploded in 2009, ending - at least for now - a political deadlock that has put reforms on hold.

The election eased fears of an immediate euro exit but reflected upheaval in Greek society, with more than a quarter of the vote going to radical leftists who want the bailout deal binned and a neo-Nazi party voted in to parliament.

Under pressure from foreign creditors on one side and popular anger against austerity on the other, the government is seen as hopelessly weak by some analysts. But others point to the broad mandate of the three-party coalition.

Analysts agree that the outcome of negotiations over the multi billion euro bailout that is keeping the economy on life support will prove crucial to the longevity of the new government.

But the cabinet is currently far from being at full fighting strength.

Prime Minister Antonis Samaras and his new nominee for finance minister will both miss the EU summit for health reasons, which socialist Pasok party leader Evangelos Venizelos said would be the "first major battle" on the bailout.

The arrival of auditors, originally scheduled for Monday, has also been delayed, with a new date yet to be announced.

Samaras has been told to avoid travel after undergoing major eye surgery, the government said on Sunday. That means Greece will be represented at the meeting by Foreign Minister Dimitris Avramopoulos, a former mayor of Athens.

Incoming finance minister Vassilis Rapanos, who has yet to take his oath of office, is also ailing. He was admitted to hospital with strong stomach pains on Friday. Neither Samaras nor Rapanos were due to be discharged until Monday.

The prime minister's surgeon Panagiotis Theodosiadis said Samaras would take "days and weeks" to fully recover from a 3.5-hour surgery on Saturday to remedy 11 cracks found in his retina. He is expected to stay at home for at least a week.

The government already has a mountain to climb and no time to lose.

State coffers are almost empty, with reserves set to last only until late July.

Structural reforms pledged in return for loans from the EU and IMF have been delayed.

As a result, the creditors lack a clear image of where the country stands, and no new funds can be released until this is clarified by an audit.

The exception is an instalment of €1bn left over from before the elections, which is expected to be released by the end of June.

But it is too small a sum to make a difference.

Greece needs €7.6bn by the end of July to cover maturing debt, and the state's tax takings are short of target.

In his election campaign, Samaras pledged to redress "injustices" in a bailout deal that most Greeks believe has exacerbated the recession and killed off any demand left in the economy.

The government on Saturday said it wanted to freeze further civil service layoffs and bargain for a two-year extension to its tough fiscal adjustment.

The aim would be to meet fiscal goals "without further cuts to salaries, pensions and public investment" and new taxes, a government policy plan said.

Under its loan agreement, Greece had promised to reduce the state payroll by 150 000 civil servants by 2015, including 15 000 this year.

The new government said it also wanted to review minimum-wage cuts and measures taken earlier this year to facilitate private sector layoffs.

There have been indications that a target extension can be considered, but eurozone hardliners such as Germany and Austria are unlikely to water down Greek commitments without a fight.

Austria's Finance Minister Maria Fekter said on Sunday that Greece's demand for a two-year extension was "negotiable".

But she noted that the reforms agreed must be completed.

"A reform path was agreed under which the Greeks would be able to finance themselves by 2020, without EU help," she said in an interview published in Oesterreich newspaper.

"The substance of this target must be adhered to, and the agreed reforms done," she added.

"But it is negotiable whether this target could be pushed back from 2020 to 2022, so two years later. Our objective is also for Greece to have a booming economy again. The country cannot be killed by cuts."

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