Greece warns bailout rebels of unknown, dangerous path

 

1 of 10. Riot policemen walk in front of the parliament during an anti-austerity rally in Athens February 11, 2012.

Credit: Reuters/Yiorgos Karahalis

By Harry Papachristou and Lefteris Papadimas

ATHENS (Reuters) - The Greek government told rebellious lawmakers on Saturday to back a deeply unpopular EU/IMF rescue in parliament or send the nation down "an unknown, dangerous path" to default and international economic isolation.

Conservative leader Antonis Samaras, who has attacked austerity policies for driving Greece ever deeper into recession, still told his party to back the 130 billion euro deal or be dropped as candidates in the next general election.

With voters deeply hostile to the bailout's tough conditions, former socialist Prime Minister George Papandreou admitted that backing austerity had cost him the premiership and even some of his friends, but the alternative was a collapse in living standards and further "unforeseeable consequences."

The coalition of Prime Minister Lucas Papademos has a huge majority, which should ensure parliament approves on Sunday a package including a further 3.3 billion euros in budget cuts this year, needed to secure Greece's second bailout since 2010.

But six members of his cabinet have already resigned over the heavy pay, pension and job cuts which the European Union and International Monetary Fund are demanding as the price of the funds, which Greece needs by next month to avoid bankruptcy.

INCALCULABLE CONSEQUENCES

Officials hammered home the message that Greece's future in the euro was at stake.

"The consequences of disorderly default would be incalculable for the country - not just for the economy ... it will lead us onto an unknown, dangerous path," Deputy Finance Minister Filippos Sachinidis said.

In an interview with the newspaper Imerisia, he described the catastrophe he believes Greece would suffer if it failed to meet debt repayments of 14.5 billion euros due on March 20.

"Let's just ask ourselves what it would mean for the country to lose its banking system, to be cut off from imports of raw materials, pharmaceuticals, fuel, basic foodstuffs and technology," he said.

Late on Friday the cabinet approved the draft bailout bill and a plan to ease the state's huge debt burden which has deepened the nation's political and social crisis and brought thousands out on the streets in protest.

As a 48-hour protest strike went into its second day, about 50 Communist party activists draped two huge banners on the ramparts of the Acropolis on Saturday, reading: "Down with the dictatorship of the monopolies (and the) European Union."

About 7,000 demonstrators gathered in central Athens, police said, but there was no repeat of trouble on Friday when police fired teargas at protesters throwing petrol bombs and stones.

SAMARAS CRACKS THE WHIP

Members of the conservative New Democracy party, which has a big lead in opinion polls before elections expected as early as April, are likely to back the deal solidly.

Samaras still warned his party, the second biggest in parliament, against stepping out of line. "This is obviously an issue of party discipline," he told New Democracy lawmakers in parliament, warning anyone who opposed the bailout "will not be a candidate in the next election."

However, the smallest party in the coalition, the far-right LAOS, quit the government in protest at the package on Friday, ordering its four cabinet members to resign. Two members of the Socialist PASOK party have also left the cabinet.

Papandreou, who negotiated the first bailout before his government collapsed in November, acknowledged the huge pressure on any politician backing the second rescue.

"I've lost friends, my family suffered, I gave up my office, I was insulted, vilified, like no other politician ever was in this country," he told PASOK's parliamentary group.

"Still, all that is nothing compared with what our people will suffer if we fail to do the right thing... Despite all the anger we are feeling inside, we must persevere."

Party discipline is much weaker at PASOK, whose support has dived to eight percent in the latest opinion from the nearly 44 percent it commanded when Papandreou led it into power in 2009.

A WHIFF OF REBELLION

Despite the whiff of rebellion, analysts expect parliament to pass the package, which also includes a bond swap which will ease Greece's debt burden by cutting the value of private investors' bond holdings by 70 percent.

Some economists suggest that if Greece defaulted and left the euro zone, its new national currency would dive in value and allow the Greek economy to become internationally competitive.

But government spokesman Pantelis Kapsis dismissed this notion. "We'll have to reduce the deficit, regardless of whether we have the euro or not."

Euro zone finance ministers have told Greece that it must explain how 325 million euros ($430 million) out of this year's total budget cuts will be achieved before it agrees to bailout.

Bailout documents released on Friday left blank the amount of the rescue but even 130 billion euros may not be enough.

Finance Minister Evangelos Venizelos said on Saturday 15 billion euros more might be needed to rescue the country's banks, confirming estimates from EU officials.

The banks are up to their necks in Greek government debt, the value of which will be slashed under the bailout, and have suffered huge losses of deposits as Greeks have either shipped their savings abroad or stuffed them under the mattress.

EU EXASPERATION

The European Union and the IMF have been exasperated by a series of broken promises and weeks of disagreement over the bailout. They will not release the aid without clear commitments by the main party leaders that the reforms will be implemented, regardless of who wins the next elections.

The uncertainty has upset world financial markets, with stocks snapping a five-day winning streak on Friday and the euro tumbling.

The bill, approved by the cabinet along with hundreds of pages of accompanying documents, sets out reforms including a 22 percent cut in the minimum wage, pension cuts worth 300 million euros this year, as well as health and defense spending cuts.

"The government believes that sustained implementation of this policy program, complemented by debt restructuring, will put the public debt on a clear downward path," it says in a draft letter to EU and IMF chiefs, attached to the bill.

In the same letter, the government promises to speed up implementation of reforms in the labor, product and services markets, cut spending, and push through a privatization plan.

One of the attached documents, which spells out the reforms Greece will have to undertake in return for the aid, says the target of cutting the debt to "about" 120 percent of GDP by 2020 from about 160 percent now will be achieved.

(Writing by David Stamp)

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Greek PM's hold on power slips despite bailout bravado

AppId is over the quota
AppId is over the quota

1 of 6. Greek Prime Minister George Papandreou delivers a speech to socialist lawmakers from his party in Athens November 3, 2011.

Credit: Reuters/Yiorgos Karahalis

By Dina Kyriakidou and Lefteris Papadimas

ATHENS | Thu Nov 3, 2011 6:02pm EDT

ATHENS (Reuters) - Greek Prime Minister George Papandreou defied demands on Thursday that he resign over his decision to hold a referendum on the nation's euro zone bailout deal, calling instead for his party to unite for a confidence vote in the government.

But Papandreou's hold on power was slipping after two turbulent years, regardless of whether he wins the parliamentary vote. Government sources said he struck a deal with his ministers to step down and hand over to a negotiated coalition government if they helped him win on Friday.

Papandreou fought back off the ropes, saying the referendum plan which provoked uproar at home and around the euro zone had forced the opposition to accept the 130-billion-euro ($179 billion) rescue and its conditions -- a new wave of deep austerity.

But his public bravado appeared to mask an acceptance that his term as socialist premier, when he has imposed wave after wave of austerity, would come to an end after he had negotiated a coalition deal with the conservative opposition -- provided he survives Friday's vote, the government sources said.

Ministers involved in striking a deal with Papandreou were led by Finance Minister Evangelos Venizelos, saying he should go for the sake of their PASOK party, said the sources, who had knowledge of Thursday's meeting of the socialist cabinet.

LEAVE CALMLY

"He was told that he must leave calmly in order to save his party," one source told Reuters on condition of anonymity. "He agreed to step down. It was very civilized, with no acrimony."

Papandreou admitted he had made a mistake in calling on Monday for the referendum on a bailout package agreed with the euro zone only last week. German and French leaders summoned him to Cannes on Wednesday where they demanded Greece keep to the deal or decide whether it wanted to stay in the euro zone.

"Venizelos told him he must make a graceful exit both for his sake and for the party's sake and that the ministers would help him do it," the source said. "This is provided he survives the confidence vote, which is not at all certain."

Greeks have fiercely opposed the spending cuts, tax rises and job losses which have been the price of financial aid from the IMF and the European Union to tackle the nation's huge debt and budget deficit. This has led to a wave of strikes and outbreaks of violence on the streets of Athens.

Analysts declared the referendum idea dead, a relief to euro zone leaders. A no vote would have sunk a deal which is supposed to prevent Greece's debt crisis from dragging down far bigger European economies such as Italy and Spain.

But the analysts also questioned whether Papandreou can survive Friday's confidence vote.

Events in Athens gathered speed a day after Papandreou held the meeting in Cannes with the German and French leaders, who told him Greece would not receive a cent more in aid until it voted to meet its commitments under the bailout deal.

The specter of a precipitous Greek default and euro exit hung over a meeting of G20 leaders beginning in Cannes on Thursday.

The French Riviera summit had been meant to focus on reforms of the global monetary system and steps to curb speculative capital flows but the shock waves from Greece upended the talks.

DODGING DEMANDS

Papandreou earlier dodged demands for his resignation when he addressed his PASOK party. But opposition leader Antonis Samaras said Papandreou had told him he would not quit.

Papandreou defended putting the bailout to the Greek people, and flatly rejected suggestions by European leaders the nation had to decide simply whether it wanted to stay in the euro or leave it.

"We would never choose to hold a referendum on whether we leave or stay in the euro. It's not something you can ask the Greek people about. It is self-evident (they want to stay)," he told a meeting of lawmakers of his socialist party PASOK.

"I trust the wisdom and the maturity of the Greek people and I trust them ... I'm not saying this romantically, I deeply believe in democracy."

He did offer to drop the referendum if the opposition backed the bailout in parliament, trying to turn the tables on the conservative New Democracy party which called for him to make way for a transitional government and early elections.

He hailed his referendum proposal for forcing Samaras to drop his long-standing opposition to the bailout package.

"I am pleased that opening the discussion through the referendum delivered a positive, creative shock," he said. "If the opposition comes to the table to back the bailout, a referendum is not needed."

Papandreou called for his party to rally behind him in the confidence vote. "Tomorrow's vote is of great importance. It will guarantee how we will continue, our next steps," he said. "There must be stability of this parliamentary group regardless of whatever discussion we hold with other parties."

Papandreou is in grave danger of losing the parliamentary vote of confidence on Friday as defections shrink his support. One PASOK lawmaker said she would not support the government, cutting its majority for that vote to just one.

PASOK has 152 deputies in the 300-member parliament. Lawmaker Eva Kaili announced she would stay in the party but refused to support the confidence vote, meaning Papandreou could count at most on the support of 151 deputies.

One analyst rated Papandreou's chances as slim. "The prime minister's position is very difficult, since he chose not to respond to the opposition's proposal for a transitional coalition government. Therefore I believe that it is unlikely that he will win the vote tomorrow," said the head of ALCO pollsters, Costas Panagopoulos.

"This day had one very positive result, the withdrawal of the prime minister's proposal for a referendum. This is over, it's a dead issue. This is very positive for Greece and a great relief."

BREAKING RANKS

Venizelos broke ranks with Papandreou early in the day, coming out against holding the referendum after the meeting with the German and French leaders.

Venizelos, one of the most powerful men in the PASOK government, originally supported Papandreou's plan. He changed his mind after he and Papandreou attended the emergency summit in Cannes on Wednesday with German Chancellor Angela Merkel and French President Nicolas Sarkozy.

A finance ministry source told Reuters on condition of anonymity that Venizelos believed the vote on the bailout should not be held while eight billion euros in immediate funding to keep Greece afloat still had to be secured.

"Under these conditions a referendum is exactly what the country does not need. He would not have objections if all our pending issues such as the loan installment and the completion of the bailout plan had been sorted out," the source said after the meeting with Merkel and Sarkozy.

"It was a very difficult meeting," the source added. ($1 = 0.725 Euros)

(Additional reporting by Reuters Athens bureau; Writing by David Stamp; Editing by Sophie Hares)

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