Greece's government struggled on Friday to agree tough labour reform that appeases both wary political leaders and irate lenders faced with a rising bill to save the country from bankruptcy.
Prime Minister Lucas Papademos is under pressure to wrap up parallel talks on a debt swap with private bondholders and negotiations with lenders on a 130-billion-euro bailout to avert a chaotic default when bond redemptions come due next month.
Athens has repeatedly said the talks are in their final stage but has failed to secure either deal after weeks of wrangling, largely on concern that the rescue plan will not do enough to bring Greece's debt burden under control.
Euro zone governments may now have to cough up an additional 15 billion euros to the 130 billion euros agreed in October because of funds needed to recapitalise tottering Greek banks, European Union sources said.
Finance Minister Evangelos Venizelos met officials from the so-called troika of foreign lenders on Friday in a bid to agree details on wage cuts and bank recapitalisation before they are presented them to political leaders for approval on Saturday.
“We are having difficult negotiations and have difficult decisions to take,” said Greek government spokesman Pantelis Kapsis. “We have to deal with political issues which are open and difficult.”
Greece had been expected to conclude both sets of talks before a meeting of euro zone finance ministers on Monday, though Berlin has suggested the meeting will be put off until all elements of the rescue plan are secured.
The lack of agreement offers little respite for investors fretting that failure to strike a deal quickly will trigger a messy default that in turn sows panic across financial markets and pushes the global economy back into a recession.
A bond swap, under which banks and insurers take real losses of about 70 percent on Greek debt they hold, is largely in place but yet to be sealed over concerns that public creditors like the European Central Bank will have also have to chip in.
Greece's foreign lenders, on the other hand, have yet to sign off on the entire bailout on doubts over Athens' commitment to reforming the Greek economy to make it more competitive.
ALTERNATIVE SOLUTIONS
Once Athens nails down details on reforms with lenders, Papademos faces the tricky task of convincing the three party chiefs in his coalition to back the unpopular reforms just a few months before the country heads to elections.
He is expected to convene a meeting of the socialist, conservative and far-right leaders in his coalition on Saturday to persuade them that Athens will have no choice but to default if they fail to approve the reforms.
Kapsis, the government spokesman, suggested Papademos would try to offer alternative proposals to the party chiefs in a bid to win their backing, though he warned each one would entail pain for Greeks reeling from wave after wave of austerity.
“It' not all black and white. There are packages of solutions with alternatives,” said Kapsis.
“No matter what decision we take it will have a cost.”
To reduce labour costs, the troika of European Central Bank, European Union and International Monetary Fund lenders want Greece to make holiday bonuses in the private sector optional and cut the minimum monthly wage set at about 750 euros now.
In a sign that implementing the reforms will be difficult even with political approval, Greek employers and unions said further salary cuts were non-negotiable and instead proposed reducing taxes and social contributions.
The main private sector union GSEE also rejected employers' proposal for a wage freeze in 2012 and 2013.
“Competitiveness on a national level is affected more by factors like bureaucracy - which is fed by complex regulation, state intervention, the tax system, corruption and anti-business mentality rather than wage costs,” the employers and unions said in the joint letter to Papademos on Friday.
In a rare bright spot for Athens, a finance ministry official on Friday said Greece's 2011 budget deficit will be smaller than expected at between 9.1 and 9.4 percent of GDP, thanks to an emergency property tax.
That is still above initial EU/IMF targets but might help Athens persuade its lenders that it will implement long-delayed reforms and slash spending further. Athens had previously estimated the deficit would be above 9.5 percent of GDP.
Greece is in its fifth year of recession, with anger bubbling over rising unemployment, tax hikes and austerity measures imposed by lenders. - Reuters