Bloomberg News

Venizelos Says Greece to Keep Promises as Deeper Debt Cut Looms

October 10, 2011

(See EXT4 for more on the euro-area financial crisis.)

Oct. 11 (Bloomberg) -- Greek Finance Minister Evangelos Venizelos said the government will push through with commitments to international creditors to deepen pension and wage cuts as European leaders move to reopen talks on a support package that may mean deeper writedowns on Greek debt.

“What needs to be done on our side is to do what we said we will do by the end of October,” Venizelos told Athens-based Mega TV in an interview today. He said the government would secure parliamentary approval for the draft 2012 budget, which was passed at the finance committee level yesterday, and budget measures including a new wage scale and eventual lay-offs for 30,000 state workers.

Germany, Europe’s dominant economy, is pushing for a bigger reduction in Greece’s debt burden to forge a lasting solution to the debt crisis that has roiled markets and shaken confidence in the euro. European leaders are struggling to develop a strategy to shore up banks amid talk of deeper-than-planned writedowns on Greek debt.

German Chancellor Angela Merkel said on Oct. 9 after meeting with French President Nicolas Sarkozy that a report from the team of inspectors later this month will help determine the next steps. Belgian Prime Minister Yves Leterme said yesterday a crisis summit now scheduled for Oct. 23 should focus on boosting the 440 billion-euro ($600 billion) rescue fund instead of reopening the July accord to cut Greek bond values by an average of 21 percent.

Germany’s Push

The European Central Bank also opposes Germany’s push to rewrite the euro area’s 12 week-old-rescue plan as leaders prepare the ground for a potential Greek default, a central bank official said.

Venizelos said talks with the heads of the mission of inspectors from the European Union, European Central Bank and International Monetary Fund, backers of the original 110 billion-euro bailout, had effectively ended. The so-called troika of creditors will need about 10 days to prepare its report, Venizelos said.

A positive recommendation will aid the payment of 8 billion euros under the EU-led bailout. Venizelos has said the country has cash to operate till mid-November.

The search for a comprehensive fix led European leaders to push back the crisis summit by five days. Prime Minister George Papandreou plans to meet European Union President Herman Van Rompuy in Brussels on Oct. 13.

Greece’s Debt

Greece’s debt load will climb to 172.7 percent of gross domestic product in 2012, about double Germany’s, as the economy contracts for a fifth year. Greek bank stocks yesterday slumped amid talk of a deeper writedown of their holdings of government bonds. National Bank of Greece SA, the largest, lost 13 percent to 1.90 euros.

Venizelos told lawmakers yesterday that the government expected an overall second financing package that’s better than originally agreed in July, which provided for private sector involvement, or PSI, entailing losses for bondholders.

“We expect a PSI-plus, a vehicle of participation with the private sector, a total package which will be better than the one originally designed,” Venizelos said.

Papandreou risks a replay of social and political unrest that almost brought down his government in June when he was forced to push through a 78 billion-euro package of budget cuts and state asset sales before receiving a fifth loan payment under the May 2010 bailout.

Garbage is piling up on city streets as local government workers strike. Air traffic controllers staged a “go slow” for the second day running yesterday while subway workers also struck in opposition to the austerity measures. Public Power Corp. SA workers blocked production at a southern Greek plant today to protest plans to reduce wages, the state-run Athens News Agency reported.

Greece’s biggest union groups will hold a 48-hour strike from Oct. 18, state-run NET Radio reported.

--With assistance from Natalie Weeks in Athens. Editors: Kevin Costelloe, Ben Livesey

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