- Full Greek cabinet due to rubber-stamp the deal today
- Papademos speaks with Lagarde, Rehn and Juncker
- Greek rightwing leader Karatzaferis leaves the talks
- Once deal is agreed, focus turns to Paris and Brussels meetings
A dispute over pension cuts stalled talks last night between leaders of Greece's fractious national unity government on tough new austerity measures, one of the last hurdles to be cleared before eurozone officials can sign off on a €130B ($172B) bailout and save Athens from a messy default. However, officials said they were still confident of reaching a deal by the morning.
A statement by Lucas Papademos, the technocrat prime minister, said there was "broad agreement on all the issue except for one which demands further elaboration".
The talks between Papademos and the heads of the three Greek political parties in his cabinet included €3B ($4B) in new spending cuts contained in a 50-page document distributed to political leaders in the morning. The full cabinet is due to rubber-stamp the deal today.
After seven hours, Papademos called in the troika -- mission chiefs from the European Commission, European Central Bank and International Monetary Fund who drafted the new medium-term fiscal programme with the Greek finance ministry -- to help break the deadlock. Greece still needs to find about €300m of savings to close a €3bn program of spending cuts to keep this year's budget on track.
Papademos earlier held separate telephone consultations with Christine Lagarde, IMF managing director; Olli Rehn, the EU monetary commissioner; and Jean-Claude Juncker, chairman of the eurozone finance ministers, who are due to discuss the Greek program this evening.
People familiar with the negotiations said Antonis Samaras, the conservative leader, had raised objections to cuts in supplementary state pensions, while former premier George Papandreou refused to discuss the alternative of cutting primary pensions. The pensions issue is seen as critical as elderly, low-income Greeks have been hit hardest by the deeper than expected recession.
George Karatzaferis, the rightwing leader and junior coalition partner, left the talks. It was not clear whether he would return to join the negotiations.
There has been mounting frustration in other European capitals, including Brussels, where officials had hoped to get a deal agreed last weekend so that they could quickly execute the central pillar of the deal -- a €200bn bond swap that will see private Greek debt holders lose half their holdings, wiping €100bn off Athens' €350bn debt pile.
Once the deal is agreed, the focus of the Greek drama will turn to Paris, where the lead negotiators for private bondholders were to meet with investors to begin preparations for the debt restructuring, and to Brussels, where eurozone finance officials will meet on Thursday to cobble together enough money to keep Greece afloat for the foreseeable future.
Debate over the structure of the new bail-out package continued to intensify behind closed doors as eurozone leaders attempted to construct a programme that would both keep the total in new rescue funds at €130bn and reduce Greek debt levels to 120 per cent of economic output by 2020.
Both those goals were signed off at a summit in October, but Greece's worsening budget outlook has forced finance ministry officials to rework the package to stay within those parameters.
There was growing consensus that sufficiently reducing Greece's debt level, which is now at about 160 per cent of economic output, would require more than the agreed €100bn cut in private debt, with leaders' focus increasingly turning to the €40bn in Greek bonds held by the European Central Bank -- the largest of any single investor.
According to several senior eurozone officials, the ECB has not yet agreed to help a revised bailout plan, but it was studying whether it could forgo profits on the €40B ($53B) portfolio -- which would pay out about €55B ($73B) if taken to maturity -- by transferring the bonds to the eurozone's bailout fund, the European Financial Stability Facility, at the price it originally paid for them.
Another plan being considered would have Greece buying the bonds directly from the ECB at the depressed price, using EFSF funds or bonds to pay for them. Either scheme would require eurozone governments ensuring more EFSF funds to buy the Greek bonds -- which may prove politically impossible.
While senior officials at EU institutions and eurozone member states were hoping the ECB would agree to forgo its profits, which would knock as much as €15B ($20B) off of Greece's debt load, four officials with direct knowledge of the talks said such a deal had not yet been agreed.
Without ECB accession, officials worry it will be impossible to get Greece's debt down to levels approved by the International Monetary Fund, which has estimated that the private debt restructuring alone will only get Athens' debt to just under 130% of economic output by 2020. Without IMF approval, the €130bn in new bail-out funds cannot be approved.
Standard & Poor's, the debt rating agency, weighed in on the side of the IMF on Wednesday, saying the restructuring of privately held debt was not enough to make Greece's debt load sustainable.
"Because only a small subcomponent of investors are actually taking the haircut and the official sector [ECB] is not, or only partially, then the reduction . . . is probably not sufficient debt relief to make debt sustainable," said Frank Gill, an S&P analyst.