Bailout: Greece in reach of coalition deal

2012-06-20 07:29


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Athens - Greece on Wednesday was close to forming a coalition to revise an unpopular EU-IMF bailout deal and pull the country out of a harrowing recession that has doomed its economic recovery efforts.

After two months of inertia and two elections within six weeks, the struggling eurozone member badly needs to get back on track with reforms promised for an international bailout that has kept it alive these past two years.

Greece also needs representation at a European summit on 28 June, and must resume contact with international auditors to restore the flow of loans that was suspended ahead of the election.

New Democracy leader Antonis Samaras, the winner of Sunday's elections, has been holding talks with the socialists Pasok and the small Democratic Left party under intense pressure from financial markets and world powers to act swiftly.

Pasok leader Evangelos Venizelos said following talks on Tuesday that a coalition agreement was possible "by midday tomorrow" - just hours before a deadline for conservative New Democracy to form a coalition runs out.

Democratic Left leader Fotis Kouvelis then said his party would give the government a vote of confidence without actually joining the cabinet.

Expiring mandate

Samaras, aged 61, a US-educated former foreign minister, is to be prime minister, Greek media reported, saying there had been a deal between the parties.

Venizelos' Pasok party meets on Wednesday to decide whether to contribute lawmakers or socialist-affiliated technocrats to the government.

And officials from the three parties were to meet again on Wednesday morning to hammer out a common policy statement after a first discussion on Tuesday that went on for nearly six hours.

Samaras' mandate to form a government expires on Wednesday.

The key issue was "not the composition of the government but the national negotiation team that will aim for the best possible renegotiation of the loan agreement" to fight recession and unemployment, Venizelos said.

But the consent of the country's creditors is far from guaranteed.

Loans suspended

IMF chief Christine Lagarde starkly noted over the weekend that the global lender was not entirely sure what Greece has been doing with its recovery programme over the last two months.

"We do not really know what has been implemented, what has been respected or not in the last six or eight weeks," she told France's Liberation daily.

European Union leaders and the IMF say an extension of a key deficit deadline is possible but the content cannot be changed and have suspended the multi-billion euro loans until the political situation is clear.

"There can be no discussions about changing the substance of the agreements but as I indicated three or four weeks ago we can by all means talk about extensions," Eurogroup chief Jean-Claude Juncker told Austrian radio.

But ahead of talks among euro finance ministers on Thursday, a senior European Union official said it would be "delusional" and "stupid" to keep the February loan agreement intact as the economic environment has changed.

Likely PM Samaras will have to contend with a surge of public anger over the austerity imposed by the bailout.

Fears eased

New Democracy only narrowly won the historic elections against the radical leftist Syriza which wants the bailout deal torn up.

New Democracy took 129 of the 300 parliamentary seats including an extra 50 seats for the winner and Syriza took 71 seats after garnering more than a quarter of the vote in a country struggling with its fifth year of recession.

Pasok took 33 seats and Democratic Left won 17 seats, although local reports said their lawmakers may not actually be included in the new government and the parties would support experienced technocrats in their place.

The results of Greece's most critical elections since the end of military rule in 1974 have eased fears of an immediate euro exit that would have shocked the global economy but left a stand-off with foreign creditors on the cards.

Under the current conditions, Greece has to cut €11.5bn - the equivalent of 5% of its gross domestic product - by 2014, although Greek parties have called for this deadline to be put off to 2016.

Greece has been forced to seek bailouts twice, first for €110bn in 2010 and then for €130bn earlier this year. It has also had a €107bn private debt write-off.

Banks in poor shape

Greece has stepped up short-term debt auctions to restock its depleted treasury and held a three-month treasury bill sale on Tuesday - its first since the election - in which it raised €1.3bn.

Before the election, finance ministry officials cited in the Greek press warned there were only enough cash reserves to pay public sector salaries and pensions until 20 July.

And its banks are in pretty poor shape despite a recapitalisation effort.

An audit of Greek banks by US investment group Blackrock last year that was not published estimated their loan losses at €30bn over the next three years, a Piraeus Bank executive said on Tuesday.

The eurozone is hoping the result can draw a line under a lengthy period of uncertainty that has unsettled markets in a country where the sovereign debt crisis kicked off in 2009 before spreading across the continent.

Read more on:    greece  |  economy

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