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With Greece on “Razor’s Edge”, Lenders Insist: Comply or Default

Greece's interim leader Lucas Papademos has a tough sell trying to convince his coalition partners to accept more austerity measures

ATHENS – As Interim Prime Minister Lucas Papademos tried to keep leaders of his coalition together in a desperate attempt to win a consensus on reforms needed to keep international aid coming, the government was told it has no choice now and must comply, or no more money will be coming and Greece will have to default next month. Papademos was trying to win over ministers from the holdover PASOK Socialists that were in power until three months ago, as well as get support from the bitter conservative New Democracy rivals and the marginal far Right-Wing LAOS party, whose leader is balking at demands from lenders that include 25 percent pay cuts for private sector workers, 35 percent slashes in auxiliary pensions, and more of the austerity measures that have put the country in a death spiral recession of 19.2 percent unemployment and led to the closing of more than 100,000 businesses.
Finance Minister Evangelos Venizelos of PASOK, who has administered waves of tax hikes that have failed to slow Greece’s slide toward insolvency,  said after 12 hours of talks with officials from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB), who are providing Greece with $152 billion in rescue loans and offering $169 billion more on the condition that Greece follow its orders, that the country’s fate was in the balance. “The moment is very crucial. We are on a razor’s edge,” he said, despite his frequent optimism that the negotiations would go well. Greece also is nearing completion of a deal to write down 70 percent of its debt with private lenders and wants the ECB to also take big hits.
Eurozone chief Jean-Claude Juncker said lenders are exasperated with Greece’s failure to implement reforms in a fast and effective manner and drew a line in the sand, although the lenders have previously made similar complaints and backed down in fear that if Greece defaults it could bring down the entire financial bloc. Still, he said, the eleventh hour is approaching for Greece. “If we were to establish that everything has gone wrong in Greece there would be no program and that would mean that in March they have to declare bankruptcy,” he said, in comments to the German news weekly Der Spiegel. Greek insiders confirmed that the possibility of bankruptcy loomed larger than at any other time, the British newspaper The Guardian reported.
“The Troika is not negotiating, it’s dictating,” an insider said. “When you negotiate you expect both sides to move, but they’re like a rock. They’re basically saying it’s this or default. Our sense is that they would prefer the shock of a Greek default than throwing money into a country they have come to see as a bottomless pit. The problem is the measures are so hard, so painful, that it is hard to see how all three leaders will accept them.”
If Greece does not keep getting loans, the country – already technically broke and surviving on foreign aid – could go into a disastrous disorderly default unless it can meet a $19 billion loan repayment.
“Crucial issues which concern the future of the country and the Greek people remain (unresolved), Venizelos said late on Feb. 5. “The distance separating the procedure being completed with success from stalemate … is very small. It’s a very fine line.”
He said the patience of lenders, both from the Troika and the other 16 countries of the Eurozone that use the euro as a currency, had run out because they believed the country would not implement more reforms, although there were reports the government has agreed to speed up privatization of state-run entities and sell or lease state-owned properties, and would use $131 billion of a second bailout to pay lenders and give the rest to Greeks banks to recapitalize them.
He said a phone conference with his fellow finance ministers in the Eurozone had not gone well, as it seems the lenders were locking arms and putting the heat on Greece to comply or go bust. “There is great impatience and great pressure not only from the three institutions that make up the Troika but also from Eurozone member states,” he added. Addressing reporters over the weekend, Venizelos said the “hour of truth” had come for the political leaders backing Papademos’s interim national salvation government. “We are at the point where they must decide and commit,” he said.
That’s the problem, as Papademos has to try to convince the coalition to administer more of the same medicine critics said has destroyed the economy, not helped it, and persuade ministers to adopt more unpopular measures, even as elections loom in two months and they would rather not be associated with them; ministers fear more of the same kind of protests, riots and strikes that brought down PASOK and drove former Prime Minister George Papandreou out of office, although he still heads his party. New Democracy is headed by Antonis Samaras, who has said he won’t go along with more pay cuts, tax hikes and slashed pensions, while LAOS leader George Karatzaferis was even more demonstrative in his opposition to austerity.
“If it doesn’t suit us and the Troika doesn’t budge we will not take the package,” he said, before heading into the meeting with Papademos. “We will not give in to ultimatums.” Greece’s leaders are in a spot as if they go along with the Troika demands, it could worsen the recession and create more social unrest, and if they don’t, the country will go broke quickly.
The government has said cutting the two months of annual bonuses that private sector workers get is non-negotiable, and they want measures that would boost competitiveness instead of constantly putting punishing measures on Greek workers, although the economic crisis was created by generations of PASOK and New Democracy leaders packing public payrolls with political hires in return for votes. They are also resisting Troika demands to fire 150,000 workers over the next few years, about 15 percent of the workforce, and shut down more public organizations.  Party leaders, trade unions and employers’ associations have predicted social upheaval if the measures are applied.
(Sources: Kathimerini, AP, DJ, The Guardian)

 

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