Greece nears deal over '€120bn rescue'

Greece’s embattled government was on Thursday night engaged in desperate negotiations to thrash out what is expected to be the largest bail-out in history.

The ruling socialists conducted fierce horse-trading with experts from the EU, European Central Bank and IMF amid mounting pressure for further austerity measures in return for a reputed €120-billion in aid.

The talks intensified as the EU’s monetary affairs chief, Olli Rehn, predicted that a deal safeguarding Greece from sovereign default—and securing global financial stability—was imminent. “I am confident the talks will be concluded in the next days,” he said, insisting that negotiators were working “day and night” to finesse the details of a rescue package that would finally end the debt crisis.

In a week that has seen Greece’s turmoil not only worsen but spread across Europe, the prospect of a deal was met with immediate relief. In Athens the stock exchange rebounded after days of dramatic losses with the general index up nearly 8%.

Pressure on Greece in capital markets also dropped with the spread on Greek 10-year bonds narrowing to 6,48 percentage points over their German equivalents from 10 points on Wednesday.

However the spectre of more austerity measures to keep bankruptcy at bay was greeted with anger from the country’s labour force. Unions announced further stoppages—including a 24-hour general strike on May 5.

“We got a flavour of a very harsh package of measures—measures that will lead to [further] recession.” said Yiannis Panagopoulos, head of the confederation of Greek workers, GSEE, after meeting Prime Minister George Papandreou with other union leaders to discuss the bail-out.

“We realised we stand before a done deal,” said Ilias Iliopoulos, who represents the civil servants’ union. “This will acutely burden people, and what is worse, burden them unfairly.”

Communist militants backed by the country’s powerful far-left KKE party pledged they would take to the streets to protest against the “criminal” measures.

After the toughest austerity programme the country has seen since the second world war—a mix of wage cuts and tax hikes—the income of the average Greek is down nearly 20%, with low- and middle-income earners especially hard-hit.

Mounting anger over the perceived inequity of the measures has created a febrile climate as crime has also risen and the mood in city centres has become increasingly edgy.

There is widespread speculation that the IMF will pour further fuel on the fire by demanding that the government steps up the unpopular policies to rein in a public sector deficit of 13,6% and €300-billion debt over the next three years.

Among the measures under consideration is said to be a two to four percentage point hike in VAT from 21% currently, a further 10% increase in levies on fuel, alcohol and cigarettes, and a cut in bonuses.

Sources close to the talks said Papandreou was desperately trying to avoid having to cross the “psychological red line” of abolishing the 13th and 14th salaries received by public-sector employees in addition to their monthly wages.

“God help the man. He is walking a very fine line,” said one senior diplomat. “The success of Greece’s economic recovery depends as much on how this crisis is dealt with politically as it does the numbers.” -

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