Greeks fail to strike deal

Athens - Greek leaders failed early on Thursday to agree on reforms and austerity measures, the price of a bailout to avoid a messy default, forcing Finance Minister Evangelos Venizelos to go to the country’s financial backers with an incomplete deal.

Athens' partners in the European Union and the International Monetary Fund are increasingly exasperated by a lack of agreement on the measures they demand in return for a €130bn bailout and time is running out for Greece before a major March 20 bond redemption.

Eurozone officials say the full package must be agreed with Greece and approved by the EU, IMF and European Central Bank before February 15 so legal paperwork can be completed in time to avoid a chaotic default that could threaten global economic recovery.

But after all-night talks with leaders of the three parties in the Greek coalition and with chief EU and IMF inspectors, Venizelos emerged shortly before dawn to say that one issue was unresolved.

“I am leaving for Brussels in a short while with the hope that the Eurogroup meeting will be held, and a positive decision on the new programme will be taken,” he told reporters.

“The financial survival of the country in the coming years depends on the new programme ... It is time of responsibility for everyone.”

Venizelos had hoped to present to his fellow eurozone finance ministers in Brussels a fully-fledged deal on a new bailout plan, including a commitment for €3.3bn in budget cuts this year.

A spokesperson for the socialist PASOK party said disagreement over pension reform had been the stumbling block.

Prime Minister Lucas Papademos said earlier he hoped the party leaders could sort out their differences before eurozone finance ministers meet at 17:00 GMT.

Before then, all eyes will be on what the ECB is willing to do to help Greece at its monthly policy meeting.

90%

A senior government official said the party chiefs had agreed on how to make about 90% of the promised savings, leaving a relatively small hole in the calculations.

Athens had to close this gap quickly, said the official. “Greece has another 15 days to specify fiscal savings worth €300m,” he said on condition of anonymity.

International lenders are demanding that the party leaders commit themselves in writing to implement the programme of pay and pension cuts, structural and administrative reforms.

However, the leaders have been loath to accept the lenders’ tough conditions, which are certain to be unpopular with voters. They face parliamentary elections possibly as early as April.

“In these difficult hours we have to look after the ordinary people, the pensioners,” conservative New Democracy leader Antonis Samaras said after the political leaders’ meeting.

“I haven’t got the right to not negotiate hard and I don’t care what other people think about that. We have to make sure that people will suffer less.”

Newspaper editorials criticised the harshness of the austerity measures demanded by Greece’s lenders, but said there was no other option but to give in and agree.

“The memorandum seems, and in fact is, heavy and unbearable for the majority of the Greek people but unfortunately it is the only choice so that the country is not led over the cliff,” financial daily Imerisia said.

Greece has been falling deeper into recession since it was rescued by a first bailout deal in May 2010, with unemployment reaching record highs of over 18%.

“The measures that are being imposed on Greeks so as to ensure the restructuring of the debt have the same, unsuccessful recipe: more cuts, which will cause deeper recession and will create the need for new cuts. A vicious circle,” centre-left daily Ta Nea wrote in the first-page editorial.

Almost there

Prospects for a deal had brightened, if shortly, when the finance ministers’ chairperson Jean-Claude Juncker called the Brussels meeting - which IMF managing director Christine Lagarde will attend - to examine the bailout and accompanying bond swap.

On offer from the EU and IMF is a package involving the new rescue funds and a bond swap with private creditors to ease the nation’s large debt burden.

Athens is also urging the ECB to forego profits on its Greek bond holdings in what could raise €12bn or more.

The ECB’s 23-member Governing Council has yet to agree a position.

For the bailout, Athens must accept conditions requiring big cuts in many Greeks’ living standards. The smallest member of the coalition, the far-right LAOS party, was particularly uncomfortable with the measures.

Panos Beglitis, spokesman for PASOK which is in the coalition along with LAOS and the conservative New Democracy party, said they had disagreed over the level of cuts to supplementary pensions needed to safeguard the pension system.

However, he told reporters the leaders had agreed to cut the minimum wage by 22% as part of efforts to make the economy more competitive. Plans to scrap holiday bonuses paid to private sector workers had been dropped.

Two sources close to the talks said the government would promise spending cuts and tax rises totalling €13bn from 2012 to 2015, almost double the €7bn it originally pledged.

Other elements of the deal have been gradually slotting into place, including the bond swap with private creditors to ease Greece’s debt burden by reducing the value of government bonds held by banks and insurers.

The new bonds would have an average interest rate of around 3.5%, said state NET TV, with creditors having to swallow a 70% cut in the value of their debt holdings.

Ratings agency Standard & Poor’s said Greece would probably fail to achieve manageable debt levels if it relied on the 70% reduction in the value of bonds held by private creditors, putting the onus on the ECB to take losses too.