By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — Greece’s political leaders remained under intense pressure from Europe on Monday to agree to new austerity measures in order to receive a second bailout package seen as crucial to averting a messy default.
Talks between the three parties that back Prime Minister Lucas Papademos’s interim government were pushed back to Tuesday, news reports said, in order to give the premier more time to talk with representatives of Greece’s troika of international creditors — the European Union, International Monetary Fund and the European Central Bank.
European leaders, including German Chancellor Angela Merkel and French President Nicolas Sarkozy, pressed Greece to agree quickly to a deal.
The developments appeared to dent risk appetite somewhat, but saw the euro post only modest losses while European shares and Wall Street saw slight declines. The euro /zigman2/quotes/210561242/realtime/sampled EURUSD -0.1642% traded at $1.3073 versus the dollar, a decline of 0.2%. Read more on the trading in Frankfurt, Paris, London and elsewhere.
A weekend of marathon negotiations saw progress but failed to achieve a final agreement. Late Sunday, Papademos said that a five-hour negotiating session with the leaders of the three parties that back his interim government produced an agreement on some demands, including spending cuts equal to 1.5% of gross domestic product.
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But disagreements over other demands from Greece’s “troika” of international creditors were seen blocking the path to a final deal.
Leaders were resisting calls for implementing wage cuts in the private sector, reports said. Meanwhile, unions representing public-sector workers and private-sector employees were set to hold a nationwide strike Tuesday.
Greek unions and employers’ associations last week rejected calls for private-sector wage cuts. The troika has reportedly pushed for a cut in the country’s minimum wage and the elimination of additional pay at Christmas, Easter and summer holidays.
Party leaders, however, were close to an agreement on cutting the private-sector minimum wage by an average of around 20%, Dow Jones Newswires reported Monday, citing two unnamed government officials.
Greece must satisfy the so-called “troika” of creditors in order to receive a second bailout of 130 billion euros ($170.6 billion) that was agreed to in principle last year. Without the aid, Greece is seen as certain to miss a March debt repayment, putting the country into outright default.
Antonis Samaras, leader of the conservative New Democracy party, said he would continue to resist pressure for additional austerity. Samaras said the troika is “asking for more recession” in Greece, according to news reports. They also quoted him as saying: “I am fighting to avoid this.”
Georgios Karatzaferis, leader of the right-wing LAOS party, said he wouldn’t “contribute to a revolutionary explosion arising from impoverishment,” The Wall Street Journal reported.
European leaders warned of potentially ugly consequences if an agreement isn’t reached soon.
“We want Greece to stay in the euro [...] this is the opinion of both of us,” Merkel said in a joint news conference in Paris with French President Nicolas Sarkozy. “But I also say there can be no new Greece program if agreement is not reached with the troika.”
Luxembourg Prime Minister Jean-Claude Juncker warned that a default would be the result if Greece is unable to comply with demands to implement the program demanded by creditors.
“If we determine that everything is going wrong in Greece, then there won’t be a new program, and that means in March you’ll have a declaration of bankruptcy,” said Jean-Claude Juncker, prime minister of Luxembourg, in an interview published Sunday by Germany’s Der Spiegel magazine. Juncker chairs meetings of euro-zone finance ministers.
Greece’s unemployment rate is nearing 20% as the country begins a fifth year of recession. The economy is estimated to have contracted by more than 6% in 2011. The steep contraction in economic activity and the inability to meet previous fiscal targets has led to speculation the new bailout plan may ultimately need to be boosted by around €15 billion.
The troika insists that Greece must cut its debt pile from its current level of around 160% of gross domestic product to 120% by 2020.
Papademos said political leaders on Sunday also backed a call to cut supplemental pension benefits for Greek workers, recapitalize banks, and boost competitiveness by reducing wage and non-wage labor costs.
“The Greek negotiations are getting down to the wire, with probably no more than one or two weeks left to get all the agreements in place if we are to avoid a messy default in March,” said Erik Nielsen, global chief economist at UniCredit Bank.
Greece is also negotiating with private creditors over details of a voluntary bond swap that aims to lop around €100 billion off of the country’s debt pile. Reports said an agreement — also necessary to ensure Greece receives its second bailout — appears to be near.
Feb. 13 is widely seen as “realistically the last possible date” for Greece to tender its debt-swap proposal to private bondholders in order to complete the arrangement before March 20, said Don Smith, an economist at ICAP in London.