Reuters

(Reuters)

Greece Defies Euro Zone on Pension, Labor Reform

Politics Reuters

Greece defied its international creditors on Thursday, refusing to cut pensions or ease layoffs to meet their demands, dimming prospects of progress next week towards securing desperately needed financial aid.

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Despite efforts by European Commission President Jean-Claude Juncker to coax leftist Prime Minister Alexis Tsipras into moving on two key conditions for releasing EU/IMF bailout funds, a Greek government spokesman said lenders could not expect Athens to make all the concessions.

"There should not be an expectation on the part of institutions ... that the government will back down on everything," Gabriel Sakellaridis told a news conference. "When you negotiate, there should be mutual concessions.

"We won't go beyond the limits of our red lines," he said. "It's clear that we cannot cut pensions."

Athens is running out of cash but has dragged its feet on accepting unpopular reforms promised by a previous government. Negotiations have moved so slowly that the lenders have ruled out an agreement at next Monday's meeting of euro zone finance ministers.

Sakellaridis said Greece wants the Eurogroup ministers to recognize progress towards an agreement in a joint statement on Monday, giving the European Central Bank leeway to let Athens sell more short-term debt to Greek banks.

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That would ease the immediate funding crunch, helping the government make a 750 million euro payment to the International Monetary Fund on May 12 and pay wages and pensions later.

However, sources familiar with the deliberations said the ECB was highly unlikely to make such a move unless the euro zone ministers set out a very strong prospect of releasing the frozen bailout funds.

"We're nowhere near that as things stand today," said an official close to the so-called Brussels Group negotiations between Greece and the European Commission, ECB and IMF.

The central bank on Wednesday raised the amount of emergency liquidity assistance Greek banks can tap to counter deposit outflows and held off from tightening conditions for collateral they must present. But without a political deal, the ECB could toughen its stance in the next two weeks, the sources said.

Confidence between Athens and its euro zone partners is at a low point after three months of radical rhetoric, obstruction of EU and IMF officials on the ground, contradictory policy statements and obdurate negotiating tactics.

FRENETIC DIPLOMACY

In frenetic diplomacy ahead of Monday's meeting, Juncker said he discussed Greece with ECB President Mario Draghi by telephone on Thursday and would be speaking to Tsipras again later in the day, just 24 hours after their previous call.

Asked about the risk of a Greek default and exit from the currency area, the EU chief executive said, "If I were to say that 'Grexit' was an option, what do you think would happen then on the financial markets?"

A Commission spokesman said the Brussels Group would continue negotiations over the weekend.

The Commission is hoping that Tsipras's signing up to a joint statement with Juncker on Wednesday, which stressed the need for a fiscally sustainable pension system and competitive labor market reforms, has committed the prime minister to delivering the kind of package creditors have been seeking.

Tsipras also spoke by telephone with Russian President Vladimir Putin, who confirmed that Moscow was ready to provide financing to Greek companies involved in a planned gas pipeline project, a Kremlin statement said. It gave no date or amount.

German Finance Minister Wolfgang Schaeuble, one of the hardliners in the euro zone talks, scoffed that it would be "wonderful" if Russia were to help Athens, but it would not provide as much money as Greece needs.

He said he did not have high expectations for any sort of a breakthrough at Monday's meeting.

Austrian Finance Minister Hans Joerg Schelling also voiced doubt about the speed of any deal. "You do not have anything close to a sensible solution," he told Reuters.

French Finance Minister Michel Sapin, who has been trying to mediate between Athens and Berlin, the EU's main paymaster, also said a deal would not come on Monday but in the following days. Tsipras was totally engaged in seeking a solution to keep Greece in the euro zone, he said.

Eurogroup chairman Jeroen Dijsselbloem said in an interview with the French daily Le Monde that while the final deadline for a deal was the end of June, "there could also be a deadline if liquidity problems become too big for Athens".

He ruled out any discussion of debt relief for Greece until the current bailout program was successfully completed. Athens has received 240 billion euros in two bailouts since 2010, but its economy has shrunk by 25 percent, poverty has soared and a quarter of its workforce are unemployed.

Greek Finance Minister Yanis Varoufakis, sidelined from the negotiations, said in Brussels he expected a deal within days or weeks, which should include privatizations, reform of the pension system, the judiciary and value added tax.

Reprising comments that have made him a leftist hero but infuriated euro zone partners, Varoufakis said Greece should never have been given a bailout in 2010 and Germany should come to terms with the failure of the previous program.

He charged that 91 percent of the bailout funds had gone to repay mostly northern European banks.

Varoufakis said a Greek exit from the euro was "a forbidden thought in our minds" because it would eventually bring the whole single currency project down.

Late on Thursday, the government said it had asked the head of the agency responsible for administering a bailout of Greek banks to resign after she was ordered to stand trial. Anastasia Sakellariou has been accused of having a role in making bad loans when she was at now defunct Hellenic Postbank between 2008 and 2012.

Also on Thursday, the Greek parliament passed a law allowing rehiring of about 4,000 cleaners, school guards and other public sector workers laid off or earmarked for dismissal under austerity cuts imposed by the creditors.

While not against the letter of the bailout, which allows Athens to hire one public employee for every five who leave, the action combined with the revival of shuttered public broadcaster ERT and other symbolic steps has irked euro zone negotiators.

(By Renee Maltezou and Alastair Macdonald; Additional reporting by Angeliki Koutantou and Deepa Babington in Athens, Tom Koerkemeir and Jan Strupczewski in Brussels, and Yann le Guernigou in Paris; Writing by Paul Taylor; Editing by Giles Elgood, Toni Reinhold)