Greece's new government took a first step on Friday towards meeting terms of an international bailout needed to avoid bankruptcy by submitting a budget draft that foresees no new austerity measures next year as long as reforms are enacted.
Continue Reading Below
But a rift widened between the main parties backing technocrat Prime Minister Lucas Papademos's unity coalition after the Conservative New Democracy began jockeying for position ahead of an election tentatively slated for Feb. 19.
Papademos must win pledges from the rival parties that they will do what it takes to meet bailout terms or Greece's lenders will withhold funds Athens needs to avoid default in mid-December, plus more longer-term financing later.
As part of that process, representatives from the "troika" of the International Monetary Fund, the European Union and the European Central Bank will meet Papademos and the party leaders on Friday and Saturday for talks on next month's 8 billion euro loan tranche.
Tensions have risen between coalition partners, the Socialists of fallen prime minister George Papandreou and the conservative New Democracy, as the latter's leader, Antonis Samaras, has refused to sign such a commitment.
While that could imperil Athens' next aid tranche and a 130 billion euro aid deal agreed with euro zone leaders last month, Samaras also said on Thursday he needed to win a parliamentary majority in the snap election to reverse the austerity measures he disagrees with. That has angered the Socialists.
Continue Reading Below
"As far as this government is concerned, Mr Samaras is saying whatever suits him," Deputy Justice Minister George Petalotis, a senior Socialist (PASOK) party member, told state NET TV. "All he has to say is that this is a transitional government, not a coalition government."
Samaras is publicly committed to unity government but, with elections down the road, has effectively tried to distance himself while still being seen to be taking part for the sake of keeping Greece's creditors on side.
He has said he will back all austerity measures already passed but no new ones.
And although it is not clear whether the EU and IMF will demand more pain from Greek voters and taxpayers, Finance Minister Evangelos Venizelos said no new tax hikes, public wage and pension cuts, or other belt-tightening steps were necessary if measures passed by the previous government were carried out.
"We won't need to take any more measures that reduce citizens' incomes as long as we implement what we have already approved and which is already difficult," he told reporters.
The Socialist-New Democracy dispute has eroded support for the two main groupings, which are also joined in the new government by the far-right LAOS party.
But a poll showed 68 percent of voters like Papademos, who took power after an bid by Papandreou to call a referendum on reforms stunned euro zone leaders, raised doubts over Greece's future in the currency zone and led to his resignation.
The ALCO pollster survey showed support for New Democracy had slipped to 21.2 percent, from 22.5 percent before the creation of the unity government.
The Socialists fell to 11.8 percent, from 15. The data included voters who were undecided, would abstain or cast blank or invalid ballots, who together totalled 28.9 percent.
"The only certainty is the positive rating of the new prime minister," ALCO said in a commentary. "It's obvious that Greek society is facing the composition of the new government with great distrust and is waiting to see how it will act."
The reforms have angered many ordinary Greeks. On Thursday at least 50,000 took to Athens' streets on the anniversary of a 1973 student uprising against the then-ruling military junta.
Chanting "EU, IMF out!", they protested against belt-tightening steps that have already hit incomes and caused job losses, driving unemployment to a record 18 percent.
The budget draft forecast Greece's 220 billion euro economy to shrink 2.8 percent in 2012, a fifth year of contraction that Brussels predicts will bottom out at a size some 15 percent smaller than it was before the crisis.
The cabinet submitted the budget to parliament, where it will proceed through committees for a vote by the whole chamber, which Venizelos said would come on Dec. 7.
The budget's main aim is a primary budget surplus -- with revenues exceeding spending minus debt maintenance costs -- so Greece can start digging itself out from under a debt load that exceeds 30,000 euros for every Greek.
To do that, Papademos's government must tackle rampant tax evasion, start selling off billions of euros worth of inefficient public companies and lay off public workers - all reforms approved but never executed by Papandreou.
Another main component is a plan in which Greece hopes to halve the debt held by private creditors by negotiating that they will accept a 50 percent loss on the Greek bonds they hold in exchange for longer term paper.
According to the budget draft, the plan can reduce Greece's 2012 budget deficit by more than a third from this year's level to 5.4 percent of GDP.
Without the swap, over which Greece began talks with its creditors on Friday, the deficit would be 7 percent, the draft forecast. Either deficit figure would be smaller than the 9 percent the government expects this year.
The budget said the swap envisioned a 100 billion euro reduction in Greece's debt, with Athens offering bondholders 70 billion euros in new debt and 30 billion in cash to retire 200 billion euros in existing bonds.
"After a historical course of steady increase of public debt, now this will be reversed," Venizelos said. "Now the course is that of reducing public debt and removing the burden from Greeks' backs."
Venizelos said there would be a variety of options for private bondholders to choose from and has said his ministry should have a proposal ready by the end of the month.
But the Institute of International Finance, negotiating on behalf of the banks, said it may take longer to conclude.
"The end of November is an optimistic timetable. We want to move as promptly as possible," said IIF Managing Director Charles Dallara.