Greece delays bailout talks as Merkel demands action

 

German chancellor Angela Merkel told Greece today to make up its mind fast on accepting the painful terms for a new EU-IMF bailout, but the country's political leaders responded by delaying their decision for yet another day.

Failure to strike a deal to secure the €130 billion rescue - much of which Germany will fund - risks pushing Athens into a chaotic debt default which could threaten its future in the euro zone.

Speaking in Paris, Dr Merkel expressed the exasperation spreading among euro zone leaders at seemingly endless wrangling in Athens that has yet to produce a definitive acceptance of the austerity and reform conditions demanded by the lenders.

"I honestly can't understand how additional days will help.Time is of the essence. A lot is at stake for the entire euro zone," she told a news conference with French president Nicolas Sarkozy.But leaders of the three parties in the coalition government appeared to need at least one additional day.

The office of prime minister Lucas Papademos, a former central banker who heads a government of politicians, said that a meeting of leaders from the conservative, socialist and far-right parties due today had been postponed until tomorrow.

A statement issued shortly after Dr Merkel spoke gave no reason for the delay. However, it said Mr Papademos would hold further talks with the "troika" of lenders - the European Commission, European Central Bank and IMF - later today.

The party leaders, positioning themselves for a likely general election in April, have baulked at accepting another package of deeply unpopular wage and pension reductions, job cuts and tougher tax enforcement measures.

Fears that Greece might not accept the terms of a proposed new bailout deal brought a rally in global shares and the euro to a halt today, undermining the positive effect of better global economic data.

Dr Merkel made clear that her patience was wearing thin on a deal that affects not only Greece but the wider currency bloc, which fears that a default would hit much larger economies such as Spain and Italy.

In a fresh sign of mistrust, the German leader said she and Mr Sarkozy agreed Greece should deposit revenue to meet future interest payments in a special account to guarantee that creditors were paid consistently.

"We want Greece to stay in the euro," she said. But she added: "I want to make clear once again that there can be no deal if the troika proposals are not implemented.

"They are on the table ... Something needs to happen quickly. A lot is at stake for the entire euro zone," added Dr Merkel.

This sense of urgency seemed to be weaker in Athens.An official at one coalition party said the postponement was due to the fact that the government has not yet supplied the parties with a 15-page summary of the conclusions of a meeting yesterday of the political leaders.

"This would serve as the basis of today's discussion," the official said. "This paper has not been provided yet and that's the most likely reason for the postponement.

"Earlier, a Greek government official denied that the three parties in the coalition government had been given an ultimatum to respond today, after weeks of arguing over another wave of austerity in return for the €130 billion bailout.

In Brussels, the European Commission took issue with this.

"We have gone beyond the deadline already," Commission spokesman Amadeu Altafaj told a news briefing, adding that the Greek authorities had still to take the necessary decisions.

Challenged about the troika's demand to cut Greece's minimum wage, he said it averaged €871 a month, compared with €748 in Spain, which is not under an EU-IMF rescue programme, and €566 in Portugal, which has received a bailout.

Talks on the bailout have dragged on for weeks.One government official said the entire Greek side had to agree terms of the rescue, which would be the second for Athens since 2010, with international lenders before the next meeting of the Eurogroup of euro zone finance ministers.

"The only deadline is to have a staff agreement for the second bailout and the agreement of the political leaders before Eurogroup," said the official.

No date has yet been set for the Eurogroup meeting, and the Commission spokesman said it would be held only when Greece had made its commitments to the deal.Leaders of the Pasok socialist party, the conservative New Democracy and the far-right LAOS party still have to agree on unresolved problems.

These include labour market reform and shoring up domestic banks. Greece needs the bailout money by mid-March to meet big debt repayments but tempers are rising in the European Union over what it sees as Greek dithering on implementing reforms.

Mr Papademos said after five hours of talks on Sunday that party chiefs had agreed measures including wage cuts and other reforms as part of spending cuts worth 1.5 per cent of gross domestic product.

Hopes rose today that they had also made progress on recapitalising domestic banks, which are up to their necks in Greek government bonds now worth a fraction of their face value.

Greek bank stocks were up 9.7 per cent in the afternoon on hopes that lenders would be recapitalised without being nationalised after a debt swap under the latest bailout deal, which will radically cut the value of their bond holdings.

The euro fell today as the failure of Greek coalition parties to sign off on the terms of a new bailout kept alive the risk of a chaotic default that could ensnare other countries such as Portugal.

Greeks have been worn down by a deep recession, now in its fifth year, and wave after wave of austerity measures imposed under the first bailout.

Alarmed by the prospect of yet more budget cuts, Greece's two main trade unions said they would call a 24-hour strike for tomorrow in protest against policies they say have only driven the economy into a downward spiral.

Reuters