Greek leaders fail to agree on austerity measures

May 27, 2011 - 11:44 AM
Greece Financial Crisis

Greece's conservative leader Antonis Samaras, right and right-wing LAOS party leader Giorgos Karatzaferis attend a meeting in Athens on Friday May 27, 2011.Greek political leaders held crisis meeting to find consensus on austerity measures. (AP Photo/Aris Messinis,pool)

ATHENS, Greece (AP) — Greece's main opposition conservative party has rejected a government plea for cross-party agreement on new austerity measures, despite strong pressure from the European Union and worries about a default.

Conservative leader Antonis Samaras on Friday said he could not endorse a program that would "flatten the Greek economy and destroy Greek society."

Samaras and other opposition party leaders met with Socialist Prime Minister George Papandreou for more than three hours in a failed bid to reach a deal that would extend debt reduction measures to 2015, two years beyond the present government's mandate.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

ATHENS, Greece (AP) — Greece's political leaders held emergency talks on Friday in another effort to find a consensus on new, harsher austerity measures to pull the country out of its debt crisis and convince skeptical investors it can avoid default.

The European Union has demanded cross-party support for the reforms, due to run two years beyond the current government's mandate to 2015, as it considers more help for the country.

President Karolos Papoulias chaired the nearly four-hour meeting with Socialist Prime Minister George Papandreou, his finance and foreign ministers, and the heads of four opposition parties. Papandreou failed earlier this week to gain broad cross-party support for a drastic 2011-2015 cost-cutting and privatization plan.

Debt inspectors from the EU, the International Monetary Fund and the European Central Bank, known as the troika, are in Athens to monitor progress on last year's euro110 billion ($155.85 billion) bailout loan deal for Greece, which remains shut out of the bond markets and is facing a potential financing gap in 2012.

The inspectors will determine whether the country is meeting the criteria for the next installment of the bailout, worth euro12 billion, to be disbursed. A decision is expected next month.

But the crisis took an ominous turn Thursday, when Jean-Claude Juncker, the chairman of the Eurogroup, reportedly said the IMF may have to hold back the next tranche, because the IMF's loans are contingent on Greece showing what its state financing will be over the next 12 months. Until recently, that was meant to include raising cash on bond markets next year, a move the Greek government has admitted is unlikely as its market borrowing rates remain too high.

Finance Minister George Papaconstantinou has warned that Greece faces default and would be unable to pay salaries and pensions without the next batch of rescue loans.

Asked about Juncker's comments, German government spokesman Christoph Steegmans replied only: "We are still waiting for the report from the troika mission that is supposed to come between the beginning and middle of June."

There are fears that with a budget deficit of 10.5 percent of gross domestic product and a debt of more than euro342 billion, Greece will not be able to pull through the crisis even with the current bailout package. But opinions diverge radically in what must be done.

Some analysts and politicians have advocated a restructuring of debt, where the country would pay creditors either less than the full amount owed or at a later date. But the ECB adamantly opposes such a solution, saying it could spread turmoil through the European banking system. It has even threatened to take the drastic step of cutting off support for Greece's banks if Athens restructures.

David Mackie, analyst at JP Morgan in London, said Juncker might have been trying to put pressure on Greece to reach a cross-party agreement on economic reforms. He said, however, that European governments would be ready to step in with extra aid.

"We do not believe that Greece will be allowed to default in the coming weeks due to a failure to disburse the funds under the current program," Mackie said.

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Derek Gatopoulos in Athens and Geir Moulson in Berlin contributed to this report.