By Stuart Manning
Greek Prime Minister Lucas Papademos won the consent of the Cabinet for further budget cuts required to obtain a second package of international aid, as he readies for parliamentary vote in order to prevent financial collapse.
The Cabinet approved the 287-page-long document unanimously. With the approval, the Greek parliament could possibly vote tomorrow to put in place budget measures equal to 7 per cent of GDP over the next three years, along with a debt swap to cut 100 billion euros atop over 200 billion euros of privately-held debt.
Papademos told his ministers, "The social cost this program implies will be limited compared to the economic and social catastrophe that would follow if we don’t adopt it. The completion of the program and financial support will cement our country's future in the euro area."
The approval ended a tense week where the European Union and International Monetary Fund officials argued with Greek officials over the conditions to secure a 130 billion euro rescue package. On Thursday, Papademos reached an agreement with leaders of the three parties supporting his interim government hours before a crucial meeting of euro-area finance ministers in Brussels, where he was told that more work was required.
George Papandreou, the former Greek Prime Minister and the leader of the socialist Pasok party, said today in a televised speech in Athens, "Now is the time for responsibility for all of us toward our country. The recipe for the program isn't right or wrong. It's the only one available."
Antonis Samaras, the leader of New Democracy, said that with a write-off of debt through a voluntary exchange, Greece would be able to move away from the danger. In his televised address to his party, Samaras said, "It won't solve the problem, but it will help. It distances us from bankruptcy, looting, the chaos that would follow." Samaras added that the country needed elections as soon as its secured financing, as party leaders had previously agreed.
There's already tension with 14.5 billion-euro bond payment due on March 20, and Papademos even saw five ministers resign in two hours and protesters clashing with police in Athens over the course of an anti-austerity strike. He said to his ministers, "It should be evident that whoever disagrees and doesn't vote for the new program cannot remain in this government." He added that political austerity was the chief reason why finance ministers didn't approve the program.
Papademos added that not securing the rescue package would hit 11 million Greeks with a default that would stop of wages and pensions from being paid; and will shut schools, hospitals and businesses. Finance Minister Evangelos Venizelos said that Sunday's vote would be essentially a ballot on euro membership. "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 on Friday in Brussels.
German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that Greece did not have the right deficit goals, and needed to do more to meet its bailout
commitments. The Laos party, which has 16 members in the parliament, said it would oppose the plan. George Karatzaferis, the leader of Laos, said, "What has particularly bothered me is the humiliation of the country. Clearly Greece can't and shouldn’t do without the European Union but it could do without the German boot."
As Schaeuble briefed Berlin lawmakers on troika estimates that were expressed in Berlin, he said that current plans would leave Greece's debt at 136 per cent of GDP by 2020, which compares with the 120 per cent foreseen in the second bailout. Debt was about 160 per cent of the GDP of 2011.
With the success of aid talks, which have been going on since July, Greece would be able to make the March bond payment and thwart threats that speculators will target debt-ridden nations including Italy and Portugal.
In Athens, the police tussled with demonstrators as unions started a 48-hour strike against the austerity measures demanded by the "troika" of international creditors who monitor the Greek progress. The strike, organized by the private-sector GSEE union, shuttered schools, government services, and some public transit for the second time this week.
The hardliner response in Europe comes after more than two years of Greece failing to carry through promised reforms to manage its uncompetitive economy and
meet the requirements to receive aid. The country blamed its shortcomings on the worsening recession. This week's numbers showed unemployment as rising to 20.9 per cent in November and the industrial production as dropping.
On Thursday,bondholders met separately in Paris to talk about accepting an average coupon of 3.6 per cent on new 30-year bonds in a proposed debt swap. It proposed slicing 100 billion euros from the 200 billion euros of privately-held debt, of which a formal offer must be made by Monday in order to allow all procedures to be completed before March, 20.
Olli Rehn, the European Union Economic and Monetary Affairs Commissioner said that the deal is "practically finalized."
