24th May 2022

Greece seeks bail-out deal 'this week' to avert catastrophe

  • Commemorative euro coin issued for the 2004 Athens Olympics (Photo: Wayne Lam (Ramius))

Greece is seeking a deal with private lenders and the EU "by the end of the week" its prime minister said Tuesday (31 January), as Athens races to avoid a financial meltdown ahead of debt repayments due in March.

Speaking to journalists after a special conclave at the end of the EU summit on Monday, Prime Minister Lucas Papademos said he had "more detailed discussion" with his "European friends" about the talks with private bankers and the outstanding reforms needed to secure a €130 billion bail-out Greece needs to refinance its debt in March.

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EU council chief Herman Van Rompuy, commission president Jose Manuel Barroso, as well as the head of the eurozone finance ministers, Jean Claude-Juncker and European Central Bank (ECB) envoy Joerg Asmussen are understood to have put extra pressure on Papademos to "deliver" on the spending cuts in order to secure the deal.

The conclave was needed because "during the summit at 27 we did not go into details, there were other important issues on the agenda," Papademos explained.

He admitted that "there are still some difficulties" in the negotiations with the troika of public lenders - the European Commission, the ECB and the International Monetary Fund - when it comes to further spending cuts and lowering labour costs in Greece.

Papademos noted that the country's deficit was slashed by eight percent of the gross domestic product in the last two years. "Our overall deficit has been reduced, but there is still a huge amount dedicated to financing our debt," he said.

Athens "managed to recovered 50 percent of its lost competitiveness compared to the period 2000-2009. But we know this is not enough and we should take more steps to improve our competitiveness, boost growth and stabilise unemployment, particularly among young people - where it's over 40 percent," Papademos said.

Another tricky issue is securing political support for the highly unpopular budget cuts, with the country preparing for general elections in April.

EU leaders have demanded "written commitments" from all political parties that the reform programme will continue. For his part Papademos - a technocrat and ex-ECB official recruited in November after his predecessor resigned - said he was given reassurances by all political groups that they will support "the whole programme."

As for the talks with private creditors - Greece being the only bailed-out country negotiating a 'voluntary' loss of at least 50 percent on existing bonds to cut its outstanding debt to 120 percent of gross domestic product - Papademos said he hoped they could be wrapped up by the end of the week. This would allow bank to implement the deal by mid-February and avoid a disorderly default in March.

He said Athens was not asking for a larger contribution from the public sector - which could come either via a bigger share paid by eurozone countries or by the ECB taking losses on the Greek bonds it has on its books.

EU economics commissioner Olli Rehn last week suggested a higher contribution may be needed as the Greek funding gap has increased compared to October, when the details of the second bail-out were agreed.

Admitting that the "time schedule is very tight," Papademos made a plea for a final effort to be made by all parties to help the country come through.

"The reforms have already produced very painful outcomes, an increase in unemployment, but it is important to go on with our commitments, in order for these sacrifices not to be lost. We are at a crossroads and need to support our country to dig it out of the hole," he said.

As for the controversial German proposal to appoint a special EU commissioner in charge of his country's budget, Papademos said that "this issue was not at all discussed."

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