Greek premier Lucas Papademos held last-minute talks on Sunday with international lenders on wage and pension cuts amid fears that political leaders may reject a second €130bn bail-out and plunge the country into a chaotic default.
Evangelos Venizelos, finance minister, said “It’s not an impasse but there are problems for the Greek side” over terms of a medium-term package being negotiated with the so-called “troika” – representatives of the European Commission, European Central Bank and International Monetary Fund.
The two sides were “quite far apart” over projected cuts of 25 per cent in private sector wages, 35 per cent in supplementary pensions and the immediate closure of about 100 state-controlled organisations with thousands of job losses, a Greek official said.
Mr Papademos held telephone conversations on Sunday with Christine Lagarde, IMF managing director and Mario Draghi, ECB president, in a bid to break the deadlock, the official added.
The three leaders of Greece’s national unity government were due to meet Mr Papademos later on Sunday to agree the package before it goes to eurozone finance ministers for approval next week.
It was not clear whether former socialist premier George Papandreou and Antonis Samaras, the conservative leader bidding to succeed him, would also meet the troika mission chiefs.
Mr Samaras has threatened to veto the deal unless the troika makes concessions on private sector wages, claiming the cuts would prolong a recession already in its fifth year. George Karatzaferis, head of a small rightwing party, has distanced himself from the talks.
We have to fix the Greek problem. If we don’t, we are opening a new Pandora’s box– Josef Ackermann, Deutsche Bank
Markets may react negatively if Athens fails to complete a deal by Sunday evening, on worries that Greece could default on a €14.5bn bond repayment on March 20, and that “contagion” could spread to Portugal and Italy, Greek bankers and officials said.
“Greece is already deep into extra time,” one Athens banker said.
The standoff has also delayed agreement with private bondholders’ representatives who flew to Athens to finalise a €200bn debt swap included in the rescue package.
Josef Ackermann, chief executive of Deutsche Bank, has warned that failure to agree on a voluntary debt rescheduling for Greece could open “a new Pandora’s box” in the eurozone crisis.
“We are in a make or break situation,” said Germany’s most powerful banker and senior participant in the talks led by the Institute of International Finance.
Private sector creditors were being “extremely generous” in offering to take a loss of more than 70 per cent on their Greek government bonds, he said, as a contribution to helping Greece manage its debts.
Mr Ackermann told a conference in Munich: ”I think the markets are recognising this. But we have to fix the Greek problem. If we don’t, we are opening a new Pandora’s box.”