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Greek deal prospects rise, euro ministers to meet

The Parthenon on the Athens Acropolis is seen behind a Greek and EU flags atop the Greek Finance Ministry.

ATHENS/BRUSSELS: Prospects of a deal on a second international bailout for Greece rose Wednesday when eurozone finance ministers were summoned to talks in Brussels while Greek political leaders met to approve a tough reform and austerity program.

Eurogroup chairman Jean-Claude Juncker invited ministers from the 17-nation single-currency area to meet Thursday evening and the International Monetary Fund said managing director Christine Lagarde would also attend.

They are expected to examine a complex package involving a 130 billion euro EU/IMF rescue and a bond swap with private creditors, which hinges on Athens accepting conditions that require big cuts in many Greeks’ living standards.

Juncker went ahead and called the meeting even though leaders of the three Greek coalition parties met with Prime Minister Lucas Papademos to discuss the terms of a rescue package to avoid a chaotic default in March that would send wider tremors around te world economy.

International lenders are demanding that the leaders of the conservative New Democracy party, PASOK socialists and far-right LAOS commit themselves in writing to implement the program of pay and pension cuts as well as structural and administrative reforms.

After a series of delays, the leaders finally received a 15-page document Wednesday laying out the principles of the bailout and its conditions, a party official told Reuters. Attached were a further 30 or so pages laying out how the program will be implemented.

The plan involves cutting the minimum wage by about 20-22 percent, a government official said. It also gives political leaders the option of cutting pensions over 1,200 euros by up to 20 percent or cutting supplementary pensions by 15 percent on average or a combination of cuts in both main and supplementary pensions, the official said.

Other elements of the deal have been gradually slotting in place, including a bond swap with private creditors to ease Greece’s debt burden by reducing the value of government bonds held by banks and insurers.

The new bonds would have an average interest rate of around 3.5 percent, said state NET TV, but creditors will have to swallow a 70 percent cut in the value of their debt holdings.

German Deputy Finance Minister Thomas Steffen said in Berlin the bond swap offer to private creditors could be made as early as next week.

He voiced exasperation at Greece’s failure to implement economic and fiscal reforms since the debt crisis erupted two years ago, saying governance remained below European standards.

“I believe we can say today that we have made little progress on Greece since 2010, worryingly little progress,” Steffen said.

With banks and insurers having mostly agreed to take a hefty writedown, Athens and the commercial banks are urging the European Central Bank to forego profits on its Greek bond holdings to help cut the debt to a sustainable level.

But ECB policy-makers are still divided on what contribution the bank could make to a restructuring of Greek debt, two eurozone monetary policy sources said.

While the ECB has ruled out joining private creditors in accepting losses on its Greek bonds, it could provide indirect relief by renouncing profits from bonds it bought at below face value.

The ECB’s 23-member Governing Council, which holds a monthly meeting Thursday, has yet to agree a position.

 
A version of this article appeared in the print edition of The Daily Star on February 09, 2012, on page 1.

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