Greece, IMF expect debt deals soon

February 1, 2012 - 1:16 PM
APTOPIX Greece Financial Crisis

A man wrapped in a sleeping bag during near-freezing temperatures walks past a graffiti-covered wall in central Athens, Wednesday, Feb. 1, 2012. An International Monetary Fund debt inspector said in a newspaper interview published Wednesday that negotiations for landmark debt deals with Greece will be concluded in a "matter of days" but pressed the recession-hit country to lower employment costs and even slash the minimum wage. (AP Photo/Petros Giannakouris)

ATHENS, Greece (AP) — Greece and the IMF said Wednesday that negotiations for landmark debt deals will be concluded in a "matter of days," raising hopes that the country will dodge a disastrous default in the spring.

Greece is locked in two sets of talks— one with private creditors to have them take losses on their bondholdings and the other with its international bailout rescuers to receive new loans.

"We are at a crucial point in developments. In the coming days, the agreements must be completed" for the bond swap and a second euro130 billion ($171 billion) bailout package, government spokesman Pantelis Kapsis said.

Debt inspectors from the European Commission, European Central Bank and the International Monetary Fund, known as the troika, are in Athens for talks on the second rescue package, which is tied to an agreement with private creditors to accept losses on Greek bonds they hold. The success of the bond deal, however, also depends on the outcome of the bailout talks.

The bond swap, known as the Private Sector Involvement, or PSI, will see private creditors swap the bonds they hold with new ones worth half their original face value, longer repayment times and lower interest rates. They will also get a euro30 billion cash sweetener — to be taken from the euro130 billion bailout — for accepting the deal. Once secured, the PSI will cut euro100 billion off Greece's national debt.

Overall, the investors participating in the deal will face a loss on their bondholdings of more than 70 percent, Finance Minister Evangelos Venizelos said in a Parliament committee meeting Tuesday night. The official offering of the new bonds will come by Feb. 13, Venizelos said.

Greece is running out of time, as it faces a euro14.5 billion bond redemption on March 20 that it cannot afford to pay without additional help. A default would spell disaster for the country and destabilize European and global markets.

Both deals will need the agreement of the heads of the three political parties in Greece's interim coalition, Kapsis said, and Prime Minister Lucas Papademos was to call the party heads to a meeting to sign off on them and required austerity measures.

Chief IMF inspector Poul Thomsen also said a deal was close, but pressed the recession-plagued country to lower employment costs and even slash the minimum wage to make the economy more competitive.

"It's a matter of days," Thomsen was quoted as saying by the Athens daily Kathimerini. "The discussions for the (new) program will be concluded very soon."

Thomsen insisted wages in Greece remain too high and urged the government to consider cutting the minimum wage of euro750 ($988) gross pay per month.

Greek unions and employers are to resume negotiations on Thursday in an effort to cut labor costs, but both sides are already in agreement that the minimum wage and basic private sector pay should not be affected, arguing such a move would only deepen the recession.

The EU statistics agency Eurostat on Tuesday revealed that unemployment in December in Greece rose to 19.2 percent, the second highest rate in the eurozone after Spain, which stood at 22.9 percent.

The recession and repeated rounds of austerity that have seen salaries and pensions cut have also taken a toll on consumer spending. The National Confederation of Hellenic Commerce warned on Wednesday there would soon be "conditions of absolute poverty in Greece."

The business association noted recent statistics showed a 19 percent fall in the volume index for clothing and shoe sales by 19 percent from January to November 2011 compared to the same period the previous year. The overall turnover index for retail trade in November 2011 fell by 6.3 percent compared to the same month in 2010.

Greece has been dependent since May 2010 on funds from an initial euro110 billion package of rescue loans from other eurozone countries and the International Monetary Fund. Its European creditors have been pressing Athens to adhere to the terms of the bailout agreement, criticizing it for dragging its heels in many of the reforms it has pledged.

"We have clear agreements on Greece, and they must be lived up to," German Finance Minister Wolfgang Schaeuble told public radio station Deutschlandfunk on Wednesday.

Schaeuble said Greece knows it must implement the measures linked to the first bailout that have not yet been carried out before receiving any further assistance.

"We have to insist on this, because of course we must help Greece as it is in a particularly difficult situation," he said.

Asked whether German taxpayers might have to pay yet more money to keep Greece afloat, Schaeuble answered: "No! Greece must live up to its commitments. We can only help when it is not a bottomless pit."

Both the PSI deal and the new bailout agreement will be put before the heads of the political parties who form the country's uneasy coalition government — the majority Socialist party, rival conservatives and the small right-wing LAOS party.

LAOS leader George Karatzaferis sent a letter Wednesday to the top European Union officials, calling on the European parliament to take a position on Greece's debt agreements and describing the current debt inspection arrangements an "economic dictatorship."

In the letter, Karatzaferis wrote: "Reform cannot happen at gunpoint, especially when it requires the participation of the complex structure of an entire society."

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Derek Gatopoulos in Athens and Juergen Baetz in Berlin contributed.