Difficult decisions in Athens
Late on 5 February, in the prime minister’s palace in central Athens, the three leaders of the major parliamentary parties backing the Loukas Papademos government in the house of deputies, left through the main entrance of the building after five hours of deliberation with Papademos over the demands of the EU-ECB-IMF troika over the terms of the second soft-loan package for the debt stricken country, without making any decisions.
The most difficult situation is with Antonis Samaras, leader of the New Democracy party, who is ahead in public opinions polls and is expected to lead the government after the next general election, whenever it is held.
If he agrees with the deeply unpopular measures that the troika wishes to impose on Greece, he may lose his lead in the polls. In any case, EU leaders have said that they will meet again with the prime minister on 6 February, to conclude the difficult details of the agreement with the troika.
After the meeting, Samaras said: “This is the first time that Greece is really negotiating with the troika.” Political analysts consider this as a positive sign that an agreement may be reached soon between the three leaders and the troika. Greece also has to conclude an agreement with the country’s private lenders, the banks on the famous Private Sector Involvement (PSI) deal, but this has to be done in tandem with the main deal with the troika, in order to receive the second soft-loan package for Greece of €130 billion.
On the first issue, Greece seems to have now finalised the details with its private creditors - the major European banks have accepted that they may lose as much as 70% of the nominal value of their Greek bond holdings on the basis of present value estimate, given that there will be a ‘haircut’ of 50% on these bonds. The banks will receive 35% in new bonds, plus 15% in cash.
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 agreement to alleviate Greek debt is concluded. According to information from Athens, this leaves a gap of €15bn 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), which is the most probable option.
Athens, however, is not allowed to agree to PSI without having accepted the troika’s terms over the second loan to support the country for as long as is needed for Greece to be able to self-finance her debts, hopefully by 2015.
The difficult part of this agreement is that the troika demands deep deregulation of the Greek labour market, along with a reshuffle of the entire public-sector's wages system and 15,000 lay-offs of government employees before the end of 2012.
The main friction points are the lowest legal remuneration and the traditional 13th and 14th salaries in the private sector. The troika is demanding that the lowest salaries are reduced by at least 20% 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 of the Greek parliament, with diverging opinions on this issue.
The prime minister must conduct negotiations internally with the leaders of these three parties and externally with the troika.
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