Greek party leaders seek deal as bankruptcy looms

[February 07, 2012]  ATHENS, Greece (AP) -- Greek party leaders on Tuesday will meet to seek a long-delayed agreement on harsh cutbacks demanded to avoid looming bankruptcy, amid intense pressure from its bailout creditors to reach a deal, a general strike disrupting public services and thousands of protesters taking to the streets of Athens.

Heads of the three parties backing the interim government will confer with Prime Minister Lucas Papademos on new salary cuts and job losses, which Greece's eurozone partners and the International Monetary Fund are demanding to keep the country's vital rescue loans flowing.

The parties were to be handed a draft agreement of the austerity deal before the meeting, a senior government official and a ranking coalition party member told the Associated Press, but gave no further details.

"The document will be given to political party leaders in the afternoon, it isn't yet finalized, it's still being drafted," the government official said.

They asked not to be named, citing the sensitive nature of the negotiations.

A general strike against the impending cutbacks stopped train and ferry services nationwide, while many schools and banks were closed and state hospitals worked on skeleton staff.

Riot police fired tear gas to repel hundreds of anti-austerity protesters who burned a German flag and tried to break a cordon outside Parliament, chanting "Nazis out!"

No arrests or injuries were reported and the clashes quickly subsided.

Police said some 10,000 people took part in an otherwise peaceful march to Parliament under heavy rain, organized by the country's two biggest labor unions. A separate demonstration by about 10,000 Communist unionists ended without incident.

"They are committing a crime against the country. They are driving wage-earners into poverty and wiping out pensioners and the unemployed," said Vangelis Moutafis, a senior member of Greece's largest union, the GSEE.

"They are selling off state assets for nothing. This cannot continue. This crime must be stopped, right now."

On Monday, Prime Minister Lucas Papademos' government caved in to demands to cut civil service jobs, announcing 15,000 positions would go this year, out of a total 750,000. The decision breaks a major taboo, as state jobs had been protected for more than a century to prevent political purges by governments seeking to appoint their supporters.

Athens must placate its creditors to clinch a euro130 billion ($170 billion) bailout deal from the eurozone and the IMF and avoid a March default on its bond repayments.

Among the measures the EU and IMF are pressing Greece for is a cut in the euro750 ($979) minimum wage to help boost the country's competitiveness. This reduction would have a knock-on effect in the private sector -- because private companies also base their salaries on the minimum wage -- and even unemployment benefits. Unions and employers' federations alike have deplored the measure as unfair and unnecessary.

Greece has been kept solvent since May 2010 by payments from a euro110 billion ($145 billion) international rescue loan package. When it became clear the money would not be enough, a second bailout was decided last October.

As well as the austerity measures, the bailout also depends on separate talks with banks and other private bondholders to forgive euro100 billion ($131.6 billion) in Greek debt. The private investors have been locked in negotiations over swapping their current debt for a cash payment and new bonds worth 50 percent less than the original face value, with longer repayment terms and a lower interest rate.

Greek government officials say they expect private investors to take losses of an estimated 70 percent on the value of their bonds.

The EU-IMF bailout will also provide an estimated euro40 billion ($52 billion) to protect Greek banks from immediate collapse. Domestic lenders and pension funds hold some 34 percent of the country's privately owned debt.

However, the bailout has to be secured for the deal with private investors to go ahead as about euro30 billion from the bailout will be used to pay investors in the bond swap deal.

A disorderly bankruptcy by Greece would likely lead to its exit from the eurozone, a situation that European officials have insisted is impossible because it would hurt other weak countries like Portugal.

But on Tuesday, the EU commissioner Neelie Kroes, in charge of the bloc's digital policies, said Greece's exit wouldn't be a disaster.

Kroes told Dutch newspaper De Volkskrant that "It's always said: if you let one nation go, or ask one to leave, the entire structure will collapse. But that is just not true."

She said Greece's austerity drive so far left much to be desired.

"This is why the troika (IMF, EU and European Central Bank) is back in Greece again, reporting for the umpteenth time that Greece is not living up to its promises: too few savings, too few reforms," Kroes said. "It's becoming a Greek mantra: 'We cannot. We won't'!"

Greece's coalition party leaders held a first key meeting on the austerity measures on Sunday, and postponed a second round of talks by a day so Papademos could complete negotiations with EU-IMF debt inspectors that ended early Tuesday.

The leaders have already agreed to cut 2012 spending by 1.5 percent of gross domestic product -- about euro3.3 billion ($4.3 billion) -- improve competitiveness by slashing wages and non-wage costs, and re-capitalize banks without nationalizing them. But the details remain to be worked out.

Creditors are also demanding spending cuts in defense, health and social security.

"It is clear that there is a lot of pressure being put on the country. A lot of pressure is being placed on the Greek people," Finance Minister Evangelos Venizelos said during a break in talks with EU-IMF debt inspectors late Monday.

He called on coalition parties to work more closely together.

"To save Greece ... will involve a huge social cost and sacrifices," Venizelos said. "On the other hand, if the negotiations fail, bankruptcy will lead to even greater sacrifices."

[Associated Press; By NICHOLAS PAPHITIS]

Derek Gatopoulos in Athens, Costas Kantouris in Thessaloniki and Gabriele Steinhauser in Brussels contributed to this report.

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