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Time Is Running Out for Greece, Merkel Says

By BlackboxPulse on | From bbpulse.blogspot.com

European leaders stepped up pressureon Greek politicians to meet the conditions of a 130 billion-euro ($171 billion) bailout, saying time was running out.
French President Nicolas Sarkozy met German ChancellorAngela Merkel in Paris today as Greece’s interim prime minister,Lucas Papademos, planned to confer with the so-called troika ofinternational lenders in Athens. A gathering of Greek politicalleaders was delayed by a day until tomorrow as they struggledfor a unified response.
“I can’t quite understand why we need a few more days --time is running out,” Merkel said today in a joint briefingwith Sarkozy.
With the country’s stability at stake, a tentativeconsensus yesterday among Greek party leaders on an accordframework marked a step forward as Athens played host toparallel domestic and international negotiations whilepersuading Greece’s private creditors to accept biggerwritedowns on their debt holdings.
“An agreement has never been so close, neither for privatenor public creditors,” Sarkozy said. “We have to conclude it.We can’t imagine there won’t be an agreement.”
The leaders of Europe’s two biggest economies proposedsetting up an account for Greece’s interest payments toguarantee lenders are paid.

‘Make or Break’

Euro-area finance chiefs told Greek Finance MinisterEvangelos Venizelos in a Feb. 4 conference call that an increasein the bailout package wasn’t forthcoming, underscoring theirfrustration at a lack of progress on fixing the economy. Theeffort to keep Greece from tumbling into default presents whatDeutsche Bank AG Chief Executive Officer Josef Ackermann calleda “make or break” moment.
The euro fell amid the political wrangling, losing 0.8percent to $1.3052 as of 4:40 p.m. in Athens.
Papademos will meet the three party leaders tomorrow tohammer out the details of the measures. Antonis Samaras, thehead of the second-biggest party, New Democracy, indicated hewould oppose some measures that the so-called troika ofinternational creditors have put forward.
“They are asking us for greater recession, which thecountry can’t take,” Samaras said as he left the meeting withPapademos. “I will fight to avoid that.”

General Strike

Greece’s biggest public-sector and private-sector uniongroups, ADEDY and GSEE, called a 24-hour general strike fortomorrow to protest austerity measures.
Papademos and the party leaders yesterday agreed in a five-hour meeting to make additional reductions this year equal to1.5 percent of gross domestic product. They have yet to iron outdifferences over policy measures demanded by lenders onrecapitalizing banks, ensuring the viability of pension fundsand reducing wages and non-wage costs to boost competitiveness.
The troika wants the country to detail over 4 billion eurosof measures to meet targets for 2011 and 2012 because wage cutswill deepen the recession and cause a shortfall this year, onegovernment official told reporters in Athens.
The troika argues that cutting private-sector holidayallowances is among reforms necessary to boost competitivenessin the country. Those opposed say the cuts would deepen thecountry’s recession, now in its fifth year.

‘Razor’s Edge’

Greece’s efforts to win a second bailout from the troika --the European Commission, the European Central Bank and theInternational Monetary Fund -- have hung in the balance over thepast three days as negotiations in Athens failed to clinch anagreement. Venizelos said on Feb. 4 the talks were on a“razor’s edge.”
Facing a 14.5 billion-euro bond payment on March 20 andgeneral elections as soon as April, Papademos must heedinternational demands for greater austerity to complete thetalks on a second aid package in time. Open questions involvehow much more aid Greece needs, how much more austerity isrequired, and how to involve the European Central Bank in theprivate-sector creditor debt swap.
Guarantees from Greek political leaders such as Samaras,who leads in opinion polls, are key to securing the funds fromthe EU and IMF. International lenders want assurances thatwhoever wins the next election will stick to pledges made now toreceive financing.
George Papandreou, the former prime minister who stillleads the Pasok socialist party, the biggest in the Greekparliament, held talks with members after the meeting to discussits response.

Extending Mandate

In a letter sent separately to Papademos, he proposed thatPapademos’s mandate be extended to boost confidence amonglenders the pledges will be implemented. That is an optionlikely to be opposed by Samaras, who has called for elections assoon as the new financing is agreed.
The rescue blueprint includes a loss of more than 70percent for bondholders in a voluntary debt exchange and loansthat will probably exceed the 130 billion euros now on thetable. A formal offer for the debt swap must be made by Feb. 13to allow all procedures to be completed before the March 20 bondcomes due.
“One thing is clear: the Greek drama continues tounfold,” Joachim Fels, chief economist at Morgan Stanley, wrotein a note yesterday. “A really, really bad scenario for theeuro area -- a Greek default and departure from the euro area --simply cannot be excluded.”

Missing Targets

Greece has lagged behind budget targets set when it won aninitial, taxpayer-funded rescue of 110 billion euros in May2010, prompting euro-area threats to cut off aid and hastening aGerman push to make bondholders contribute. The country’seconomy shrank 6 percent last year, according to the most recentIMF estimates, the budget deficit is still close to 10 percentof GDP and unemployment is about 18 percent.
Even after a second bailout, Greece may be saddled with toomuch debt, too little growth and too large a budget hole to dowithout even more money, which euro nations led by Germany areincreasingly reluctant to offer.
Papademos met yesterday with the lead negotiators on thedebt accord with Greece, Charles Dallara, managing director ofthe International Institute of Finance, and Jean Lemierre, asenior adviser to the chairman of BNP Paribas SA. The debt swap,Venizelos said on Feb. 4 “is now the easiest part of theprocess.”
Creditors are prepared to accept an average coupon of aslow as 3.6 percent on new 30-year bonds in the exchange, said aperson familiar with the talks, who declined to be identifiedbecause a final deal hasn’t been struck yet.