Papademos to Ministers: Back Bailout or Quit

Bloomberg

By Maria Petrakis and Simon Kennedy - Feb 10, 2012 9:25 PM GMT+0200

… current plans would leave Greece’s debt as high as 136 percent of GDP by 2020…

… The Greek offer is not sufficient…

… Political uncertainty, Papademos said, was the main reason for finance ministers failing to approve the program…

Greek Prime Minister Lucas Papademos told members of his government they must back deeper budget cuts needed to prevent financial collapse or quit, as political dissension threatened to unwind the country’s second bailout.

Papademos said failure to secure the 130 billion-euro ($171 billion) rescue package that’s under negotiation threatened 11 million Greeks with a default that would halt the payment of wages and pensions and shut down schools, hospitals and businesses. He spoke after five ministers resigned in two hours and protesters clashed with police in Athens.

“Some say default would be preferable,” Papademos told a Cabinet meeting in Athens this evening, according to an e-mailed transcript from his office. “They are woefully mistaken. What is of the essence right now is to do whatever we can to approve the new plan and let the loan accord proceed.”

Concerns the bailout might unravel mounted after euro-area finance ministers yesterday kept back approval of Greece’s austerity measures, one of the Greek governing coalition parties pushed back against German demands for deeper cuts, and police used tear gas to counter demonstrators in the capital.

Papademos met his ministers to discuss the bill detailing the measures, amounting to 7 percent of gross domestic product to 2014, which will be put to a parliamentary vote this weekend. The Cabinet gathered after one minister and three deputies from the Laos party as well as a Socialist minister said they were quitting in protest at the steps worked out for a rescue.

‘German Boot’

“What has particularly bothered me is the humiliation of the country,” George Karatzaferis, the leader of Laos, which has 16 members in the 300-seat parliament, said in televised comments. “Clearly Greece can’t and shouldn’t do without the European Union but it could do without the German boot.”

Karatzaferis spoke hours after German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that Greece was missing deficit goals and had to do more to meet its bailout commitments.

With the rescue package in the balance, the parties that support Papademos’s interim government will meet tomorrow ahead of parliamentary votes on the new measures. Lawmakers will convene from both the Socialist Pasok party and the New Democracy party, which leads in opinion polls before elections due as soon as April. A number of Pasok deputies have threatened to vote against the bill.

Political uncertainty, Papademos said, was the main reason for finance ministers failing to approve the program in Brussels yesterday.

‘Cannot Remain’

“It should be evident that whoever disagrees and doesn’t vote for the new program cannot remain in this government,” he said.

Global stocks fell for the first time in four days and the euro weakened from yesterday’s two-month high against the dollar as the plan for Greece ran into turbulence.

Police in Athens scuffled with protesters as unions started a 48-hour strike against the austerity measures demanded by the so-called troika of international creditors who monitor progress made by Greece.

Schaeuble, briefing lawmakers in Berlin on troika estimates relayed to the Brussels meeting yesterday, said current plans would leave Greece’s debt as high as 136 percent of GDP by 2020, according to two people in the meeting. That compares with the 120 percent foreseen in the second bailout. Debt was about 160 percent of GDP last year.

“The Greek offer is not sufficient and they have to go away to come up with a revised plan,” Bertrand Benoit, a spokesman for the German Finance Ministry, said by telephone.

Juncker’s Conditions

The emergency euro-area talks broke up late last night with Luxembourg Prime Minister Jean-Claude Juncker saying Greece must turn its budget cuts into law, flesh out 325 million euros in spending reductions and have its major party leaders sign up to the program so they don’t retreat after the elections. Another extraordinary meeting was set for Feb. 15.

“In short: no disbursement without implementation,” Juncker said. “We can’t live with this system while promises are repeated and repeated and repeated and implementation measures are sometimes too weak,” he said.

In a bid to pressure his country’s lawmakers, Greek Finance Minister Evangelos Venizelos said the parliamentary vote on budget cuts amounted to a ballot on euro membership.

‘Salvation and Future’

“If we see the salvation and future of the country in the euro area, in Europe, we have to do whatever we have to do to get the program approved,” he said.

Resolution of the aid talks, which have dragged on since July, would allow Greece to make a 14.5 billion-euro bond payment on March 20 and contain the threat that speculators will target debt-saddled nations including Italy and Portugal.

The strike called by the private-sector GSEE union shut down schools, government services, and some public transit for the second time this week.

“They want to privatize the entire country,” Ploumitsa Triantafillopoulou, 42, who works for an organization that promotes day-care facilities for children, said today in an interview. “All of us here we will lose our jobs. They don’t care for us. They don’t care for the people of Greece.”

Europe’s hardline stance follows more than two years in which Greece failed to carry through promised reforms to tackle its uncompetitive economy and meet the terms for aid. Greece blamed its shortcomings on a deepening recession now set to worsen with reports yesterday showing unemployment jumping to 20.9 percent in November and industrial production declining.

Debt Swap

Bondholders met separately in Paris yesterday to discuss accepting an average coupon of as low as 3.6 percent on new 30- year bonds in a proposed debt swap. An agreement would slice 100 billion euros off more than 200 billion euros of privately-held debt and a formal offer must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due. European Union Economic and Monetary Affairs Commissioner Olli Rehn said the deal is “practically finalized.”

The Brussels meeting, attended by International Monetary Fund chief Christine Lagarde and European Central Bank President Mario Draghi, came hours after Papademos and party chiefs ended a week of meetings with a deal on fresh budget cuts.

The measures are aimed at delivering budget reductions totaling 1.5 percent of GDP this year and range from a 22 percent paring of the minimum wage to lower pension payments and immediate job cuts for as many as 15,000 state workers.

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net