Athens still resisting further austerity measures
On 6 February in Athens, the three political leaders who support the Papademos interim government are to meet again with the prime minister in order to conclude the agreement with the EU-ECB-IMF troika over the country's second soft-loan package of €130 billion.
Without it, Greece will go bankrupt in mid-March, when a huge bond of €14.4bn is due to mature – the country cannot redeem it without the troika's official financial aid via the second package. The three leaders had a six-hour meeting with Papademos on 5 February, without any tangible results.
The most difficult situation lies with Antonis Samaras, leader of the New Democracy party, who is ahead in public opinions polls and is expected to lead the government after the next general election, whenever it is held.
If he agrees with the deeply unpopular measures that the troika wishes to impose on Greece, he may lose his lead in the polls. In any case, EU leaders have said that they will meet again with the prime minister on 6 February, to conclude the difficult details of the agreement with the troika.
After yesterday's meeting, Samaras said: “This is the first time that Greece is really negotiating with the troika.” Political analysts consider this as a positive sign that an agreement may be reached soon.
Agreed on the basics
Late on the night of 5 February, however, Prime Minister Papademos's office issued an announcement saying that the three leaders and he had agreed on the principles in view of the troika's demands. The statement read:
Late on the night of 5 February, however, Prime Minister Papademos's office issued an announcement saying that the three leaders and he had agreed on the principles in view of the troika's demands. The statement read:
Prime Minister and the presidents of PASOK, New Democracy and LAOS, the three political parties that back his government in Parliament, agreed among other thing on the following basic lines:
*Measures should be taken to reduce state expenses by 1.5% of the GNP.
*Subsidiary pension funds should secure their long term viability.
*Competitiveness deficit has to be taken care of by reducing the salary and non-salary production cost aiming at increasing employment and economic activity.
*Greek banks should be recapitalised through a combination of measures securing the public interest and their operational autonomy.
The largest parliamentary party, PASOK, also issued an announcement on 5 February, saying that the party “agrees on everything” essential for the country to avoid bankruptcy.
After the four leaders left the prime minister's palace, Papademos met with the representatives of the private lenders, the banks, to discuss the details of Private Sector Involvement (PSI).
*Measures should be taken to reduce state expenses by 1.5% of the GNP.
*Subsidiary pension funds should secure their long term viability.
*Competitiveness deficit has to be taken care of by reducing the salary and non-salary production cost aiming at increasing employment and economic activity.
*Greek banks should be recapitalised through a combination of measures securing the public interest and their operational autonomy.
The largest parliamentary party, PASOK, also issued an announcement on 5 February, saying that the party “agrees on everything” essential for the country to avoid bankruptcy.
After the four leaders left the prime minister's palace, Papademos met with the representatives of the private lenders, the banks, to discuss the details of Private Sector Involvement (PSI).
The twofold deal
Greece must conclude an agreement with the country’s banks on the PSI deal, but this has to be done in tandem with the main deal with the troika, for Athens to receive the second soft-loan package of €130 billion.
On the first issue, Greece seems to have now finalised the details with its private creditors - the major European banks have accepted that they may lose as much as 70% of the nominal value of their Greek bond holdings on the basis of present value estimate, given that there will be a ‘haircut’ of 50% on these bonds. The banks will receive 35% in new bonds, plus 15% in cash.
This may still not be enough to reduce the overall sovereign debt to the desired manageable level of 120% of GNP by the year 2020, after the PSI agreement to alleviate Greek debt is concluded. According to information from Athens, this leaves a gap of €15bn that must be financed either by Greece herself (a rather unlikely prospect) by her peers in the Eurozone or by the European Central Bank (ECB), which is the most probable option.
Athens, however, is not allowed to agree to PSI without having accepted the troika’s terms over the second loan to support the country for as long as is needed for Greece to be able to self-finance her debts, hopefully by 2015.
Greece must conclude an agreement with the country’s banks on the PSI deal, but this has to be done in tandem with the main deal with the troika, for Athens to receive the second soft-loan package of €130 billion.
On the first issue, Greece seems to have now finalised the details with its private creditors - the major European banks have accepted that they may lose as much as 70% of the nominal value of their Greek bond holdings on the basis of present value estimate, given that there will be a ‘haircut’ of 50% on these bonds. The banks will receive 35% in new bonds, plus 15% in cash.
This may still not be enough to reduce the overall sovereign debt to the desired manageable level of 120% of GNP by the year 2020, after the PSI agreement to alleviate Greek debt is concluded. According to information from Athens, this leaves a gap of €15bn that must be financed either by Greece herself (a rather unlikely prospect) by her peers in the Eurozone or by the European Central Bank (ECB), which is the most probable option.
Athens, however, is not allowed to agree to PSI without having accepted the troika’s terms over the second loan to support the country for as long as is needed for Greece to be able to self-finance her debts, hopefully by 2015.
The troika’s demands
The difficult part of this agreement is that the troika is demanding deep deregulation of the Greek labour market, along with a reshuffle of the entire public-sector's wages system and 15,000 lay-offs of government employees before the end of 2012.
The main friction points are the lowest legal remuneration and the traditional 13th and 14th salaries in the private sector. The troika is demanding that the lowest salaries are reduced by at least 20% and the two extra yearly salaries abolished in order to restore the country's competitiveness.
It should be remembered that the 13th and 14th salaries have already been abolished in the state sector and pensions system. The problem is that the three major parties of the Greek parliament, which support Papademos's government, have diverging opinions on those issues.
The difficult part of this agreement is that the troika is demanding deep deregulation of the Greek labour market, along with a reshuffle of the entire public-sector's wages system and 15,000 lay-offs of government employees before the end of 2012.
The main friction points are the lowest legal remuneration and the traditional 13th and 14th salaries in the private sector. The troika is demanding that the lowest salaries are reduced by at least 20% and the two extra yearly salaries abolished in order to restore the country's competitiveness.
It should be remembered that the 13th and 14th salaries have already been abolished in the state sector and pensions system. The problem is that the three major parties of the Greek parliament, which support Papademos's government, have diverging opinions on those issues.
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