Greek premier seeks austerity deal with opposition

May 24, 2011 - 5:59 AM

ATHENS, Greece (AP) — Greece's prime minister sought support from his political opponents Monday for extra austerity measures required to meet the terms of an international bailout and avoid a disastrous default.

The European Union has increased pressure on Greece to find cross-party support for a midterm austerity program that will go two years beyond the current government's term, arguing that political bickering could derail Greece's fiscal efforts.

George Papandreou held successive meetings with opposition party leaders, starting with conservative leader Antonis Samaras, who has disagreed with how the government has dealt with the crisis and called for Greece to re-negotiate the terms of its bailout.

Greece on Monday announced extra measures worth more than euro6 billion ($8.4 billion) for this year, and an immediate start to a previously announced euro50 billion privatization program in an effort to shrink its budget deficit.

Papandreou's socialist government has faced an uphill struggle to meet the terms of a euro110 billion ($154 billion) package of bailout loans from other European Union countries that use the euro and the International Monetary Fund, on which it has relied for the past year to keep the country functioning.

The country's finances are currently being reviewed by inspectors from the IMF, the European Central Bank and European Commission to determine whether Greece qualifies for the next batch of loans under the program, worth euro12 billion ($16.8 billion).

Finance Minister George Papaconstantinou has warned that Greece faces default unless it can secure the next installment by late next month, saying Greece would be unable to pay salaries and pensions without the funds.

Even with the loans, many analysts and European politicians are skeptical that the country can pull itself out of the debt crisis and reduce a budget deficit of 10.5 percent and debt of more than euro340 billion ($476.68 billion) without some form of debt restructuring — paying lenders less than the full amount or later than originally scheduled.

Ratings agency Moody's said Tuesday that it would consider a restructuring of debt to be a default, and said such a move could affect other struggling European states.

"Moody's believes that a default is likely to have adverse credit rating implications for Greece, possibly some other stressed European sovereigns, and the Greek banks, regardless of the efforts made to achieve an "orderly" outcome. The full impact on Europe's capital markets would be hard to predict and harder still to control," the agency said.

EU officials have put increasing pressure on Greece to speed up its efforts and deal with political bickering. The bloc's president, Herman Van Rompuy, urged the country to quickly implement savings targets and changes to its public sector, but also said financial markets should be more patient.

Speaking at a meeting of the Organization for Economic Cooperation and Development in Paris, Van Rompuy defended the 27-nation EU's response to the financial crisis that has seen Greece, Ireland and Portugal receive massive loans to save their public finances from collapse.

He said the bloc's response had been "more bold and innovative than its critics care to admit."

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Frank Jordans in Paris contributed to this report.