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Greek bailout deal held up by labor reforms talks

By Elena Becatoros

Associated Press

Published: Friday, Feb. 3 2012 7:35 a.m. MST

IMF chief debt inspector Poul Thomsen, left, arrives at a government office building before meeting Greek Finance Minister Evangelos Venizelos in central Athens on Friday, Feb. 3, 2012. Unions and employers' associations rejected demands for private-sector wage cuts, despite pressure for the country to introduce strict austerity measures if it is to receive a crucial bailout package.

Petros Giannakouris, Associated Press

ATHENS, Greece — Unions and employers' associations in Greece on Friday rejected private-sector wage cuts, as demanded by the country's international bailout lenders if Athens is to receive a crucial, second rescue package.

The impasse appeared to be holding up final negotiations for massive new debt agreements — a eurozone finance ministers' meeting, which had been expected for Monday to back the new proposals, was postponed to later in the week.

In a letter to the government Friday, unions and employers said they rejected proposals for the minimum wage to be slashed and annual salaries to be paid to Greek workers in 14 installments.

Private sector workers have already suffered a 14 percent loss in income due to emergency taxes imposed since the beginning of 2010, the letter said.

Wage costs have emerged as a major sticking point in negotiations between the government and rescue creditors from Greece's partners in the eurozone and the International Monetary Fund for a new bailout worth at least €130 billion ($170 billion) in loans.

The creditors argue that cutting labor costs is essential to making the Greek economy more competitive. However, both the unions and employers' associations counter that the move will only further depress consumer spending and therefore tax revenue.

The government must conclude negotiations on its second rescue package "that will ensure debt sustainability of the country in the long run, and that will bring remedies to a number of serious problems that the Greek economy has had even before this crisis," said Amadeu Altafaj Tardio, spokesman for the EU's Monetary Affairs Commissioner Olli Rehn.

"And one of the main problems of the Greek economy as we have said time and again here is the chronic loss of competitiveness over the past decade. ... Therefore all the elements, including elements linked to the labor market, wage formation, are part of these discussions."

Without the new bailout deal, and a related bond swap that seeks to cut the country's privately held debt, Greece would go bankrupt in late March, when it faces a €14.5 billion bond redemption it cannot afford.

Government spokesman Pantelis Kapsis said the bond swap deal, known as the Private Sector Involvement, or PSI, and the parallel negotiations with the eurozone, European Central Bank and IMF debt inspectors for the second bailout were almost complete.

"The PSI, I think, in its basic elements is ready," he told Real FM radio, adding that talks with the debt inspectors known as the troika were "in the final stage."

"Within the day, we will have to finalize a series of alternative proposals which will be put before the political (party) leaders so we can take the final decisions," he said.

Greece has conceded the deal would see private investors take real losses of more than 70 percent through a 50 per cent cut in the face value of the bonds, along with lower interest rates and a longer repayment period than originally planned.

A meeting between Prime Minister Lucas Papademos and the heads of the three parties in his interim coalition government was expected to be moved from Friday to Saturday, according to government officials.

Asked whether there was any alternative plan, Kapsis said that "there will necessarily be a Plan B" — but that he did not want to discuss what it might be.

"Clearly, if we don't close the deal and we let go and say 'we will default on our own," we would be heading to an open bankruptcy. But I don't think anyone supports that."

Speaking from Brussels, Tardio said that while negotiations were "extremely complex," he believed an agreement was within reach "in the days to come."

Greece has been surviving since May 2010 on rescue loans from a €110 billion bailout package from other eurozone countries and the IMF. In return, it has pushed through tough austerity measures, including public sector salary and pension cuts and repeated rounds of tax hikes. Despite the measures, however, the country has failed to meet the targets set out in its bailout agreement, and now needs a combination of the bond deal and a second bailout to prevent a default that could roil the euro currency.

Finance Minister Evangelos Venizelos continued meetings in Athens Friday with debt inspectors to try and hammer out a deal.

In parliament, he warned that while the situation was difficult now, the alternative the country faced was catastrophic.

"We are not playing with fire when we are dealing with the fate of our people," he said. "Yes, the people have become poorer. Yes, we are living a drama. Yes, our standard of living has gone down. Yes, it is dramatic to be obliged too cut wages and pensions. But what we could live through, and we are trying to avoid, is indescribable."

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