Greeks balk at pension cuts in return for bailout
Release of bailout funds hinges on leaders’ ability to find equivalent savings
Finance minister Evangelos Venizelos of Greece left for a meeting of his counterparts in Brussels on Thursday morning after Greek political leaders failed to reach an agreement on austerity measures demanded by Greece’s financial backers in return for a €130 billion bailout.
After more than seven hours, talks stalled early Thursday between prime minister Lucas D Papademos and the three political leaders in his government, who agreed on a range of drastic wage cuts and public sector layoffs but failed to find consensus on more than €300 million, or about $400 million, in pension cuts demanded by Greece's foreign lenders.
According to the local news media, Greece’s foreign creditors have given the authorities 15 days to find a way to raise €300 million without cutting pensions. The creditors are said to have projected €635 million in savings from reductions to pensions. The Greek authorities reportedly plan to cut €325 million from defence spending but still have to plug a €300 million shortfall.
The three party leaders in the Greek coalition are said to have authorised Papademos to negotiate this shortage with creditors.
If agreement is not reached on this relatively small sum, the lenders will not give Greece the $170 billion in aid it needs to prevent a default as soon as a bond comes due on March 20. Failure to reach an accord could jeopardise a bond swap under which private investors would take losses of as much as 70 per cent, a deal that must be completed well before the bond comes due.
But even as Venizelos appealed to the political leaders for the umpteenth time, saying that their decisions “will determine whether the country remains in the euro zone or whether its place in Europe will be endangered,” the line between Greek political theatre and international financial trauma was difficult to discern. And after weeks of delays and threats from both sides — many of them empty - it was clear that the credibility of both Greece and its lenders was on the line.
In a sign that an agreement was still expected, Papademos’s office said in a statement early Thursday that the three parties had agreed on all issues except one and that they would continue the discussion ‘immediately.’ But as Venizelos left for Brussels, it was not clear that the pension issue would be resolved before the meeting, scheduled for 5 pm local time. A Greek parliamentary vote on the full package of measures is scheduled for Sunday.
The country’s two main labour unions called for a strike Friday and Saturday to protest the new proposed package-of austerity measures. Union leaders said protest rallies would be held outside Parliament on both days of the strike and on Sunday during the vote. After breaking talks with Papademos and issuing statements, the three political leaders retired to their homes for the night about 2 am.
Expressing dissent
A little while earlier, while Papademos was holding talks with Greece’s foreign lenders, one of the three leaders participating in the government, George Karatzaferis, the leader of the Popular Orthodox Rally, issued a statement after 1 am, saying that he was unwilling to agree to the terms of the new bailout and indicating that he might withdraw from the government.
That would leave the burden of accepting the austerity measures on the other two parties in the coalition, the Socialists and the centre-right New Democracy party.
Although Greece’s so-called troika of foreign lenders — the European Commission, the European Central Bank and the International Monetary Fund — have indicated that they will ask for written agreements from the party leaders that they will support the loan agreement, the government is still expected to be able to approve the agreement without Karatzaferis's party.
Even if he does pull out of the coalition, the government will have a majority in Parliament, where the Popular Orthodox Rally has only 16 of the coalition’s 252 seats. With elections expected as soon as April, the parties are fighting for political survival.
The leaders appear to have agreed to one of the most unpopular austerity measures, a 22 per cent reduction in the minimum wage, to €586 a month, according to the statement by the prime minister’s office. That cut is expected to affect all salaried workers, because the base wage is used as a benchmark by employers.
But the leader of New Democracy, Antonis Samaras, said the talks had foundered over cuts to pensions. Karatzaferis, whose populist, hard-right former opposition party has been losing ground with voters since it joined the government, said he would support Samaras to prevent proposed cuts to supplementary pensions. Papademos met with troika officials late into the night to try to fill a budget shortfall of about €225 million that would be left if the pensions were not cut.
Analysts suggested that the coalition partners were seeking to avoid blame for the agreement in hopes of leaving Papademos as the principal target of public anger.
Jean-Claude Juncker, the prime minister of Luxembourg, who heads a group of euro zone finance ministers, had scheduled a ministerial meeting for Thursday that he had previously said he would call only if Athens were ready to sign off on the plan.
Even that meeting would not be the final word. But it would allow for preparations for a bond swap under which private investors would take losses of as much as 70 per cent, according to one person briefed on discussions who agreed to describe them only if the person were not identified.
Some details of the bailout remained unclear, but it appeared increasingly likely that the European Central Bank would agree to forgo at least some of its potential profits on Greek bonds, once the government in Athens had agreed to the austerity measures.
