Step by step towards an Athens agreement
Greek Prime Minister Loukas Papademos: Had little to say after summit
Greek Prime Minister Loukas Papademos, who participated in the 30 January extraordinary summit of the 27 EU leaders, had almost nothing to say after he met with German Chancellor Angela Merkel late the same night.
The Greek issue was not on the summit’s agenda, but it was the main theme in every discussion outside the meeting room. The only issue that Papademos clarified afterwards was the total rejection of the German proposal that the EU should appoint a 'budget commissioner' in Athens, to establish Brussels’ control over public spending in Greece, in order to make sure that state incomes are primarily used to serve the country's debts.
The idea was rejected by a large number of leaders before they even arrived at the meeting, as they said that this did not only mean a full surrender of national sovereignty in the entire economic sphere, but that it was also a harsh blow to the country's national dignity and was, as such, unacceptable for an EU country. Papademos said that the summit did not touch on this issue.
Sources close to the Greek government say, however, that Papademos had a difficult time in Brussels yesterday. He was told that Greece has to conclude both pending deals within the week, namely the agreement with the country's banks (Private Sector Involvement (PSI)) and secondly the deal with the EU-ECB-IMF troika over the second soft-loan package for Greece.
As for the first issue Greece seems to have struck an agreement with the banks - the major European banks have accepted to lose as much as almost 70% of the nominal value on their Greek bond holdings on the basis of their present value.
On the first issue, there will be a ‘haircut’ of 50% off the nominal values of these bonds, but the low interest rate and the longer maturities of the new bonds will result in final losses of up to 70%.
And this may still not be enough to reduce the overall sovereign debt to the desired manageable level of 120% of GNP by the year 2020, after the PSI attempt to alleviate Greek debt is concluded. According to information from Athens, this leaves a gap of €15 billion that must be financed either by Greece herself, a rather unlikely prospect, by her peers in the Eurozone or by the European Central Bank (ECB).
After this is decided Athens has to agree the terms of the second loan package to support the country with the troika, for as long as is needed for Greece to be able to self-finance her debts, hopefully only until 2015.
The difficult part of the agreement is that the troika is demanding deep deregulation of the Greek labour market and the entire public sector's wages system. The main friction point is the lowest legal remuneration and the traditional 13th and 14th salaries in the private sector. The troika demands that the lowest salary be steeply reduced and the two extra yearly salaries abolished in order to restore the country's competitiveness.
It should be remembered that the 13th and 14th salaries have already been abolished in the state sector and pensions system. The problem is that the Papademos government is supported by the three major parties in parliament, which have divergent opinions on this issue and the prime minister has to conduct negotiations internally, with the leaders of these three parties, and externally with the troika.
Incidentally, European Commission President José Manuel Barroso said on 30 January that the three Greek political leaders must not only agree with the troika on the terms of the second bailout package, they must do so in a convincing and binding way.
This will probably once again raise the issue of 'signatures', as was the case towards the end of November 2011, when the leader of the second-largest party (Antonis Samaras of New Democracy) who supports Papademos in parliament, was refusing until the very last minute to sign a similar letter for Greece to receive a €7.5bn instalment from the first bailout package – he signed the letter just one hour before the country went officially bankrupt.
In any case, everything must be settled within a week, because Greece has to repay a huge bond that matures in early March. Without the troika’s new soft-loan package, Athens cannot pay the bond and the country will go bankrupt the hard way.
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