Greece Bailout Talks 'Very Difficult'

Greece Bailout Talks 'Very Difficult'

                  Βy STELIOS BOURAS And COSTAS PARIS

ATHENS—Greece's talks with international creditors on a €130 billion ($170.87 billion) second bailout package are proving "very difficult," Finance Minister Evangelos Venizelos said Friday, as a tentative meeting of euro-zone finance ministers on Monday has been postponed.

Addressing lawmakers, Mr. Venizelos said ongoing negotiations on a debt write down plan and a second bailout from the European Union and International Monetary Fund are aimed at boosting confidence in the country's banking system, which has seen a sharp drop in deposits.

What we are aiming to do now with the completion of the PSI (private sector involvement), with the completion of difficult, very difficult negotiations for the new program…is to send a message everywhere, and mainly to Greek depositors, that banks have been absolutely secured," he said.

In October, European leaders and the IMF agreed to provide Greece with a new bailout, after an initial €110 billion rescue package agreed in May 2010, to cover its financing needs through 2015. But the new loan is contingent on a debt write-down plan that would slash Greece's debt ratio to 120% of gross domestic product in 2020 from an unsustainable 160% currently.

Greece depends on the new loan to stay above water. It doesn't have the money to redeem €14.4 billion in maturing bonds on March 20 and if negotiations collapse it could become the first euro-zone country to default.

Negotiations on reforms being demanded by creditors in exchange for further assistance have "entered their final phase," said Greek government spokesman Pantelis Kapsis.



Speaking to privately owned radio station Real FM, Mr. Kapsis said that "within the day we have to finalize a series of (reforms) alternatives that will be put before party bosses for final decisions."

His comments come ahead of a meeting called by Greek Prime Minister Lucas Papademos with the heads of the three parties taking part in the coalition government to gain their approval on the unpopular measures. The meeting will take place Friday or Saturday. Euro-zone leaders have asked for written pledges from the three party leaders that they will support the austerity measures under the current government and the new one which will emerge from elections tentatively scheduled for late April.

Meanwhile, an EU official said a meeting of euro-zone finance ministers tentatively set for Monday has been postponed. The meeting was planned for Monday on the European Council's calendar of events, but a spokesman for Eurogroup President Jean-Claude Juncker said the meeting may be scheduled later next week.

Among the measures on the negotiating table with creditors are potentially draconian cutbacks in private-sector wages and further cuts to supplemental pensions as well as a broad swathe of structural reforms that Greece has been slow to implement since its first rescue package.

A Greek cabinet minister said ongoing talks with the country's so called troika of official lenders—the EU, IMF and the European Central Bank—"are moving forward slowly" because of the demands for lower salaries.

"The cuts are very unpopular among the party leaders ahead of the elections. But there has to be consensus. If there is no agreement the talks with the creditors will collapse, Papademos will resign and the country will default," he said.

But even if talks with the troika and the private creditors are completed successfully, euro-zone and IMF officials have said Greece may need up to €15 billion from its official lenders. That is because the Greek economy has deteriorated sharply from October when the write-down plan was put together by the IMF.

Another key issue is how Greek banks, hit hard by the country's five-year recession, will be recapitalized via a state fund. Mr. Venizelos is in favor of the lenders issuing the government common shares, rather than preference shares, but talks have yet to be resolved with creditors.

Greek lenders have seen deposits drop by €65 billion since the end of 2009, Mr. Venizelos said, of which €16 billion were legally transferred abroad. Less than 10% of this amount has gone to Swiss banks with another 32% having been deposited in British banks, he added.