Papademos Gets Domestic Support on Greek Debt

By Maria Petrakis and Eleni Chrepa – Jan 29, 2012

Greek Prime Minister Lucas Papademos said he has the backing of leaders from the three political parties supporting his interim government as international creditors increase the pressure on Greece to make deeper spending cuts to secure new funding.

The party leaders are in “complete agreement” with the government on continuing talks with private and international creditors, the prime minister said in a statement today after meeting in Athens with George Papandreou of the socialist Pasok party, New Democracy party chief Antonis Samaras and George Karatzaferis, head of the Laos party. Talks “aren’t easy,” he said before flying to Brussels to meet European leaders.

“If this process isn’t successfully concluded then we face the specter of bankruptcy with all the dire consequences for society that entails,” Papademos said the e-mailed statement.

European leaders meet in Brussels tomorrow to draw up rules to strengthen governance of the euro region after Greece (GDBR10) sparked a wave of financial turmoil that still threatens to splinter the euro area. With Greece struggling to meet the terms of bailout agreements struck over the past two years and facing a 14.5 billion-euro ($19 billion) bond payment March 20, policy makers are discussing plans to directly intervene in Greek budget decisions, two euro-region government officials said yesterday.

That prospect has been rejected by Finance Minister Evangelos Venizelos, officials from all Greek parties supporting Papademos, as well as other parties represented in parliament.

Deficit Estimate

The possibility of a European budget commissar for Greece emerged a day after the country’s international creditors, known collectively as the troika, said the country needed deeper spending cuts to meet 2012 deficit-cutting conditions of a second bailout package.

After two years of wage cuts and tax increases, the International Monetary Fund estimates Greece’s 2011 deficit at about 9 percent of GDP, down from 10.6 percent in 2010. The economy was expected to shrink about 6 percent last year, according to the latest IMF estimates, compared with an estimate of 3.8 percent made in June, and another 3 percent this year.

Papademos, who came to office in November charged with securing a 130 billion-euro financing package, has repeatedly warned Greeks to expect lower wages and pensions as part of reforms aimed at keeping the country in the euro and bolstering competitiveness. National elections are to be held once funding is secured.
Debt Swap

Part of the financing package, Greece’s second in less than two years, entails a debt swap with private creditors that will lop 100 billion euros off the privately-held 200 billion euros of Greek debt. Greece and private creditors said yesterday they expect to complete the accord this coming week after bondholders signaled they would accept European government demands for lower interest rates.

The sides are “close” to completing a voluntary exchange within a framework outlined by Luxembourg Prime Minister Jean- Claude Juncker, the Institute of International Finance, negotiating on behalf of private creditors, said.

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