Greece Scrambles to Meet Lender Demands

Reuters

Greece's government rushed on Tuesday to find 325 million euros in budget cuts to satisfy euro zone finance ministers deciding whether to sign off on a rescue package to save the country from a chaotic default.

Squeezed between skeptical European capitals and deep anger in Greece, political leaders must also produce written commitments to stick to the terms of the 130 billion euro ($172 billion) bailout before the ministers meet on Wednesday.

Continue Reading Below

Greek lawmakers endorsed 3.3 billion euros in cuts in wages, pensions and jobs on Sunday despite unrest in the capital, Athens, but left unexplained cuts worth 325 million euros that the European Union and International Monetary Fund want clarified before they sign off on the bailout.

Some of the money is expected to come from deeper cuts in the defence budget, said officials familiar with the talks. The Sunday bill had already trimmed 300 mln euros from defence.

There were encouraging signs from Austria, where Finance Minister Maria Fekter said she was "confident that - as far as I know the details - Greece will get more help".

The European Central Bank also said it could use profits from Greek bonds to help restructure the country's debt.

"They could use it to contribute to the sustainability of Greek debt," ECB Executive Board member Benoit Coeure said in an interview with French daily Liberation.

A government official said the Greek cabinet had a proposal on the table and that Prime Minister Lucas Papademos would chair a session of the cabinet at 4 p.m. (1400 GMT)

"There is a specific proposal by the government for the 325 million euros to be submitted to the Eurogroup tomorrow," the official, who declined to be named, told Reuters.

A second government source said: "The government will have a solution before the Eurogroup (meeting of euro zone finance ministers)."

Critics say the drastic belt-tightening is choking growth. The Greek economy contracted by 7.0 percent year-on-year in the fourth quarter of last year, the country's statistics office said on Tuesday, based on seasonally unadjusted flash estimates. It followed a 5.0 percent contraction in Q3.

Sunday's violence, some of the worst in years, with dozens of buildings set ablaze, damaged or looted, underscored a sense of deepening social turmoil.

WRITTEN COMMITMENT

There was no immediate sign that political leaders would put pen to paper to guarantee they will implement the terms of the bailout before and after an election expected in April.

Antonis Samaras, leader of the conservative New Democracy party and a member of the coalition, has taken a harder line on the austerity measures than others in the coalition.

He is the frontrunner to become prime minister in April, and while he voted 'Yes' in parliament on Sunday and expelled from the party a quarter of his deputies for rebelling, Samaras indicated he would try to renegotiate the terms of the bailout.

Greece needs the funds to avoid a disorderly default when 14.5 billion euros in debt repayments fall due on March 20.

The bailout provides for a bond swap to ease Greece's debt burden by cutting the real value of private-sector investors' bond holdings by some 70 percent. Officials say the terms of the swap will be announced on Wednesday.

"The next three weeks will be hellish. The list of actions regarding the PSI (Private Sector Involvement) and the memorandum is extremely pressing," government spokesman Pantelis Kapsis said on Monday.

But Greece managed a successful bond auction, selling 1.3 billion euros of 3-month T-bills with the yield easing by 3 basis points to 4.61 percent compared to the previous auction in January.

Other European countries have become increasingly concerned about the impact on their economies from the debt crisis.

U.S. rating agency Moody's, however, downgraded the ratings of six European countries late on Monday and put Britain, France and Austria on negative outlook, citing growing risks from Europe's debt crisis and worries about its ability to make needed reforms,

Uncertainty about the resources that will be devoted to tackling the crisis, and Europe's "increasingly weak macroeconomic prospects" were other factors behind its action, it said.

Underlining the doubts of Greece's euro zone partners, Luxembourg's finance minister, Luc Frieden, said on Monday that a failure by Greece to meet all the conditions laid down for it would lead to its exit from the euro zone.

Greece may decide it is better to leave the euro zone than to go through with such severe budget cuts, he told the Atlantic Council in Washington.

A sharply devalued currency would give it more flexibility. "It might be something which would allow Greece also to get a new start ... to create an economy that can create jobs. This however is not a scenario that I would prefer," he said.