Greece Faces Fresh Threats

By NEKTARIA STAMOULI And GABRIELE STEINHAUSER

The Wall Street Journal

Greece's shaky coalition government was hit Thursday with a double blow as talks over the shutdown of the state broadcasting company threatened to fracture the government and new worries over the financing of the country's bailout program emerged.

The breakdown in the talks sparked a threat from the junior partner in the three-party coalition to withdraw its support from the government, representing the coalition's gravest internal crisis to date.

"No agreement has been reached," Democratic Left's leader, Fotis Kouvelis, said after a two-hour meeting—the third in a week—of the three party chiefs.

A meeting of his parliamentary deputies is scheduled for Friday morning to decide the party's future in the coalition government.

In separate late-night statements on national television, both Prime Minister Antonis Samaras and Socialist party leader Evangelos Venizelos appealed for unity—but also signaled they were ready to proceed without the Democratic Left. The two parties together hold enough seats in Greece's parliament to govern on their own—albeit with only a narrow majority.

"I want to continue together as we started, but I will move on either way," Mr. Samaras said, vowing to serve out the government's four-year mandate and rejecting early elections. "Today we conclude one year as a government. Another three years remain. We will serve them out."

Meanwhile, euro-zone finance ministers sidestepped questions after a meeting in Luxembourg on Thursday about a potential financing gap in the Greek program amid reports that the euro zone's central banks were refusing to roll over Greek bonds—-something it was previously assumed they would.

The ministers urged Athens to fulfill the terms of its bailout program and thus ensure that the current review by the European Union, the International Monetary Fund and the European Central Bank is successful.

In that case, "there is no financial gap," said Jeroen Dijsselbloem, the Dutch finance minister who presided over the meeting. "The program is fully financed for at least another year."

Greece was thrown into a political crisis last week when the Greek premier ordered the shutdown of Greek Radio and Television, known as ERT, and the immediate ouster—with compensation—of its 2,700 employees.

The move touched off a storm of strikes and protests by journalists' unions—leaving viewers around the country without news programming or newspapers for a week—and black screens on the public-television channels.

The government said it would overhaul and slim down the broadcaster—long seen as a den of mismanagement and political patronage—before resuming broadcasting this summer. But Mr. Samaras's partners have demanded that the station remain in operation while the restructuring takes place. In a bid to reach a compromise on Thursday, Mr. Samaras offered to hire back 2,000 workers on a temporary basis for three months until the new public broadcaster is up and running. The proposal was accepted by the Socialists, or Pasok party, but rejected by the Democratic Left.

By shutting down ERT, Greece fulfills its obligation to a delegation of international inspectors, known as the troika, to dismiss 2,000 civil servants by the end of June. As part of that commitment, another 2,000 layoffs have to be completed by the end of the year and 11,000 more by the end of 2014.

However, the highhanded manner in which Mr. Samaras acted—by suddenly pulling the plug on the broadcaster and without prior consultation—angered his coalition partners. In the political talks this week, both Pasok and Democratic Left extracted concessions from Mr. Samaras to shuffle his cabinet and revise the common policy platform that underpins the coalition.

Without the Democratic Left, the conservative New Democracy party—which Mr. Samaras heads—and the Socialists, control 153 seats in Greece's 300-member Parliament, enough to govern albeit with a greatly reduced majority. Democratic Left holds 14 seats.

The small leftist party now faces a range of choices. It can withdraw completely from the government and move into opposition, but a more likely scenario is that it would withdraw its cabinet ministers and continue to passively support the other two parties in their policy choices. Though it appears increasingly unlikely, some sort of 11th hour, face saving compromise could still be reached.

However, one thing that appears certain is that Pasok's role in the government will increase, most likely with the appointment of several party members to key cabinet positions. There is a widespread expectation that Mr. Venizelos, the socialist party chief, will be appointed as foreign minister in a future cabinet and may take on the title of deputy prime minister.

The IMF has been hardening its stance toward its euro-zone partners in the Greek bailout of late. In a report it published this month, the fund identified several major missteps in Greece's rescue operation over the past three years, blaming them mainly on the European governments and institutions involved in the process.

The IMF has lent Greece €24.1 billion ($32.3 billion) since May 2010, when the country's first bailout was agreed. While the loan is the highest in the fund's history as a proportion of the country's size, the IMF has significantly scaled back its financial stake in the second Greek bailout, agreed last year.

Some euro-zone central banks have concerns about rolling over Greek government bonds they own, threatening to create a financing gap in the country's already-stretched bailout program, said people familiar with the matter.

One person said a "majority" of national central banks is reluctant to substitute maturing bonds with new ones, because they are concerned it might be perceived as financing the Greek government, which would break their own rules.

Such a refusal could create problems for the IMF, which is a major contributor to the Greek aid program but whose rules prevent it from disbursing bailout money if a country's program isn't fully financed for at least the year ahead.

The Financial Times reported on Thursday that the IMF had threatened to suspend aid payments to Greece by the end of July. But the IMF said it would continue to finance Greece as long as it is able to complete a review of the cash-strapped country's finances by the end of July as expected.

The IMF said a recent mission to the country had concluded that Greece had made "important progress," adding that policy discussions would resume by the end of June.

"The priority remains for the Greek authorities to deliver on the program quickly," the IMF said. "If the review is concluded by the end of July, as expected, no financing problems will arise because the program is financed till end-July 2014."

When euro-zone countries patched together a new aid program for Greece last year, they expected national central banks to roll over a total of €5.6 billion in Greek bonds until the end of 2016, of which €3.7 billion would come due before the end of 2014.

But three people familiar with the matter said they didn't expect the IMF to make any major problems about the next aid payout for Greece—some €5 billion expected to be approved before the summer. Of that payment, €1.8 billion would come from the IMF.

One of the people said the IMF was "flexing [its] muscle" ahead of the next review of the Greek bailout program. The person pointed out that even when the latest bailout deal was agreed last year, it was clear that there were gaps in the program and euro-zone finance ministers pledged to take extra measures to reduce the country's debt later on.

—Alkman Granitsas

contributed to this article.

Write to Nektaria Stamouli at nektaria.stamouli@dowjones.com and Gabriele Steinhauser at gabriele.steinhauser@wsj.com