Greek Debt Deal: EU Rejects Bailout Deal Pending More Spending Cuts, Parliament Approval

* Greece says has deal with creditors, party leaders

* Euro zone ministers demand action before more aid

* Want parliamentary approval and further spending cuts

* IMF seeks assurance on policies after election

* Labour unions call 48-hour strike

By Jan Strupczewski and Renee Maltezou

BRUSSELS/ATHENS Feb 9 (Reuters) - Greek political leaders said they had clinched a deal on economic reforms needed to secure a second EU bailout, but euro zone finance ministers demanded more steps and a parliamentary seal of approval before providing the aid.

The EU and the International Monetary Fund are exasperated by a string of broken promises by Athens and weeks of disagreement over the terms of a 130 billion euro ($172 billion) bailout, with time running out to avoid a default.

Finance ministers of the 17-nation euro zone meeting in Brussels warned there would be no immediate approval for the rescue package and said Athens must prove itself first.

Jean-Claude Juncker, who chairs the Eurogroup, set three conditions, saying the Greek parliament must ratify the package when it meets on Sunday and a further 325 million euros of spending reductions needed to be identified by next Wednesday, after which euro zone finance ministers would meet again.

"Thirdly, we would need to obtain strong political assurances from the leaders of the coalition parties on the implementation of the programme," Juncker told a news conference after six hours of talks in Brussels. "Those elements needs to be in place before we can take decisions."

"In short, no disbursement before implementation."

Facing elections as soon as April, Greece's party leaders have been loath to accept the lenders' tough conditions, which are certain to be unpopular with increasingly angry voters.

Greek Finance Minister Evangelos Venizelos left the Brussels talks quickly, telling reporters Greece faced a choice of staying in the euro or leaving.

"Until the next Eurogroup, which will most likely convene on Wednesday, our country, our people should think and make a final strategic choice," he said, saying a critical decision needed to be made over private sector bondholder losses (PSI).

"If we see the future of our country within the euro zone, within Europe, we should do what we have to do for the programme to be approved and for the PSI to be concluded on time before major bonds expire in March."

The Greek government called on the coalition parties to support the deal when it comes to parliament, saying the Brussels meeting showed they were only half way there.

"The first step is for parliament to approve it, showing political parties' commitment to the targets and the policies of the new economic programme. It's time all of us to assume their responsibilities. We need action, not words," government spokesman Pantelis Kapsis said in a statement.

The euro rose on news of a deal, which appeared to remove - at least for now - the risk of a hard default by the euro zone's most indebted country, which faces a major bond redemption on March 20. The risk premium investors charge for holding Italian and Spanish bonds fell.

However, IMF spokesman Gerry Rice said talks would continue to finalise details, making clear no agreement had been concluded yet. He said managing director Christine Lagarde wanted assurances Greece would stick to the agreed policies whatever the outcome of looming elections.

Venizelos said Athens also had an outline deal with private creditors on a bond swap in which they would give up some 70 percent of the value of their Greek bond holdings, reducing Athens' 350 billion-euro debt pile by about 100 billion euros.

"The draft agreement on private sector involvement to decrease the Greek debt burden is practically finalised, even if it will be formally approved as part of the overall package, I trust next week," EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters.

ECB President Mario Draghi said he was "quite confident" that all the components of a Greek debt deal would fall into place and hinted the central bank could provide indirect help without breaching a treaty ban on financing governments.

Athens now must get all elements in place, including the parliamentary approval, within six days. A debt sustainability analysis will also be finalised by then, Rehn said, adding that there would have to be even tighter EU oversight of Greece.

The IMF says Greece's debt-to-GDP ratio must be cut to 120 percent by 2020, but it is not clear the measures Athens is being called on to enact will be sufficient to hit that target.




PAIN AND MORE PAIN

The measures will mean a big fall in the living standards of many Greeks, now in the fifth year of a deep recession. Deputy Labour Minister Yannis Koutsoukos, a socialist, resigned over a package he said would be "painful fIIor working people".

Greece's two major labour unions called a 48-hour strike for Friday and Saturday against the reforms.

"The painful measures that create misery for the youth, the unemployed and pensioners do not leave us much room," secretary general of the ADEDY union, Ilias Iliopoulos, told Reuters.

"We won't accept them. There will be a social uprising."

Earlier, Panos Beglitis, spokesman for PASOK socialists who are in coalition along with the conservative New Democracy party and far-right LAOS, said the minimum wage would be cut by 22 percent as part of efforts to make the economy more competitive.

Asked how the differences over pension cuts had been resolved, a government official told Reuters: "There will be cuts in other areas of public spending and we will see how we will minimise reductions in pensions."

New Democracy leader Antonis Samaras defended the resistance put up by Greek political parties to deeper austerity and called for a change in policy, in comments that may buttress European partners' doubts about his commitment to the programme.

"When your country is faltering and its social cohesion is at risk, can the only antidote to the crisis be even higher unemployment and two more years of recession?" Samaras said in a televised address.

"We should show the Europeans that what is happening in Greece will soon spread to the rest of Europe if we do not change the policy of an endless austerity."

But he also said the deal opened the way for a big cut in Greece's debt that would "give us hope once again".


DEEPER RECESSION

Greece has fallen deeper into recession since it received a first bailout in May 2010. Latest unemployment figures showed the jobless rate hit a record 20.9 percent in November, with youth unemployment a staggering 48 percent.

The sharper-than-forecast contraction has opened a funding gap of about 15 billion euros in the bailout package agreed last October to bring Greece's debt down to about 120 percent of gross domestic product from nearly 160 percent today.

Two sources said the government would promise spending cuts and tax rises worth 13 billion euros from 2012 to 2015, almost double the seven billion originally pledged.

To help fill the remaining gap, Athens has urged the ECB to forego profits on its Greek bond holdings in a move that could raise 12 billion euros or more.

The bank's 23-member Governing Council discussed the issue on Thursday. Draghi hinted there was a route to do that, while ruling out the ECB sustaining any loss.

Asked whether the ECB could give back profits on Greek bonds with a face value of about 50 billion euros which it bought at a discount in the market, Draghi indicated it would have to pass on the profits to governments when they were realised.

"If the ECB distributes part of its profits to its member countries as part of the capital key, that's not monetary financing," he said.

Comments

[gerald4]

11:52 AM on 02/10/2012

The Greeks borrowing more money just kicks the can down the road.

The Greeks should go bankrupt, and then they will have to start working to support themselves, instead of living off of borrowed money (like the USA).

The EU is probably getting tired of working to support Greece and the other lazy de-industrialized, non-wealth creating, PIIGS nations. The EU is probably sorry that they let the PIIGS nations sit at their table.

The USA has also become a de-industrialized non-wealth creating nation, but maybe that does not count because US citizens are entitled to not work in some dirty plant in order to make even a few of the things that US citizens consume.

If I were a German citizen working hard in some factory to create wealth, I would resent my taxes going to support some idle fun loving person in some PIIGS nation that is not working to create any of the wealth that he is consuming.

More loans to the PIIGS nations would just enable them to continue their "living off of their credit cards" financial ways.

This is sorta like giving booze to an alcoholic that is on the wagon.

This is enabling the non-producers to remain non-productive and just live off of credit cards.

[robert horwitz]

12:30 PM on 02/10/2012

Oh come on. Where's your sense of humor? Perhaps you just have never been an Idle, Fun Loving Person. Try it before you so vociferously complain about it. You may just find that you enjoy it as much as the rest of us happy and contented seat warmers.

[gerald4]

12:58 PM on 02/10/2012

I think that "Zorba the Greek" was a great movie.

I just do not want to have to work to support those kind of people, and/or the Venture (Vulture) Capitalists like Mitt Romney and his Bain Capital group.

[DSciarrino]

11:25 AM on 02/10/2012

I think the Greeks need to tell the Germans to stuff it. We're leaving the Euro, and we're going to tell the rest of Europe to do the same. If Greece goes back to the Drachma, they'll achieve their "balance" through depreciation of the currency. If it works (which it will - See Argentina), then the Euro has no chance of survival, because all the rest of the countries in the Euro will see that they don't have to have draconian cuts just to appease Germany. The Italians will bolt and then Spain, because the people will demand it. They aren't going to see their pensions go down the drain just because Germany wants it that way. I hope the Euro doesn't collapse because it's better for everyone, but the Germans are doing everything they can to make that a reality. Talk about hard headed. . .

[Michael GE]

12:29 PM on 02/10/2012

Sorry, but
A) do you really think that 16 nations are (more or less) on the same page and would do everything entirely differently if there wasn't Germany? Neither France nor Germany nor Holland does have money in excess of what is already made available in loans, ESM core capital plus the risks/ pledges/ guarantees related to the ECB and EFSF. Plus, we too still have budget deficits and a debt/GDP rate of 79 - 80%.
http://www.spiegel.de/international/europe/0,1518,813667,00.html

B) Even at the ECB, Germany (and the other, so called "northern" countries) don't have a majority. Just look at the executive board: headed by Italy and the other nations are France, Portugal, Spain, Belgium and Germany. Equally, on the central bank governors council, with 23 members, Greece, Portugal, Spain, Malta, Cyprus, Italy would have 9 votes, while Austria, Germany, Holland, Luxembourg, Finland, Estonia, Slovakia only have 8. That leaves France (2), Belgium (2), Slovenia (1) and Ireland (1).

C) As the UK has demonstrated, we can't change the Lisbon Treaty (= law of the land). Their price tag is simply too high (giving them, in a situation like this, veto power over all financial regulation)

[Michael GE]

01:09 PM on 02/10/2012

I really wonder, what - in the scope of what is realistically and pragmatically possible - Germany should/ could do?

Are people who constantly blame Germany (and the "northern" countries) seem to turn a blind eye on some of the absurdities:
For example, people in Slovakia, Slovenia and Estonia, who are poorer on average than Greeks do have to contribute to Greek bailouts because somehow, magically??, it seems they can manage their budgets.
Italy and Italians are as wealthy, even wealthier (Italian polity) as Germany and Germans. But still it seems people demand that rather than Italy would enact reforms, money should just be taken from Germans.
Many now blame Germany for trade surpluses (it remains somewhat unclear if they refer only to the inter-EU trade surpluses, which remained afaik constant, even fell, since the Euro was introduced, or to the global ones) ... can Germany then please complain about the trade surplus that Ireland runs with Germany?
How does one calculate the "surplus", btw? I mean, if you just take into account goods, then Germany obtained about 90bn surplus within the Eurozone. But services aren't counted into that.

[Lindytindy]

11:24 AM on 02/10/2012

No mention of the hundreds of thousands rioting in the streets with molotov cocktails? Hmmm...does AOL not want us to know this? Or that the Police Union wants the EU and IMF representatives arrested. The Greek people will not stand for it, their government will topple and default. This is war. Instead of goose stepping armies invading Greece, it's economic war against the Greek people.

[gerald4]

11:05 AM on 02/10/2012

Deficit spending by the Greek government caused this crisis when the industrial nations will not loan the Greek government more money to pay their expenses.

This is the future of the USA, unless the US government stops deficit spending!

This is what happens when any nation spends more than they collect in taxes.

[Donatella]

10:51 AM on 02/10/2012

Default. Take back your sovereignty and let the Germans choke on their austerity.