Greek Prime Minister Lucas Papademos and the political leaders backing his interim government will try again Tuesday to agree on the cutbacks needed to win a new bailout deal and avoid defaulting on its debts next month.
Overshadowing talks is growing pressure from international creditors and a nationwide strike by civil servants and private-sector workers to protest new cutbacks.
Social pushback in Greece has stepped up the domestic political risks for party leaders as they balance reform demands with the need to retain popular support ahead of new elections later this year. Protesters in central Athens claim that the new programs will impoverish households and sink the country deeper into recession.
Pressure on Greece has been piling up from its euro-zone partners to accept a new round of painful austerity in exchange for a €130 billion ($170.7 billion) loan promised to the country last October. Without that aid, Greece faces a €14.4 billion bond redemption next month that it cannot pay, raising the specter of a disorderly default by the country.
This threat has Greece scrambling to negotiate last-minute details with officials from the European Commission, International Monetary Fund and the European Central Bank—known as the troika—on the new loan program.
As a condition for further aid, Greece's official lenders have demanded cross-party support for the reform and austerity program, to ensure there is no backsliding after a new government takes office later this spring.
Also Tuesday, Greece successfully sold the planned amount of Treasury bills, with its borrowing costs coming out slightly below the level of the previous auction, as the country's politicians tried to sort out differences and agree on reform measures needed to tie up external aid and avoid a disorderly default in March.
Greece's Public Debt Management Agency, or PDMA, sold €812.5 million of 26-week T-bills, including a 30% non-competitive tranche, in line with Greek auction practice. The agency received total bids of €1.701 billion.
The PDMA paid a uniform yield to buyers of the paper—predominantly domestic banks who use it as collateral in exchange for cash from the European Central Bank—-of 4.86%, down from 4.90% at the previous auction Jan. 10.
German Chancellor Angela Merkel and French President Nicolas Sarkozy suggested Monday that any new bailout agreement include a provision for a blocked account that would ensure repayment of bond holders.
Despite the delay, the three party leaders—from the Socialist, or Pasok, party, the New Democracy party, and the small, nationalist Laos party—were close to agreeing on a 20% cut in Greece's minimum wage.
The international lenders have asked Greece to come up with €3.2 billion in spending cuts for 2012 alone. Greek officials said late Monday that they were still looking for an additional €600 million in savings to meet that goal.
Apart from the wage cuts, the troika have also been demanding new cutbacks in government spending, the mass layoff of some 15,000 civil servants in Greece's bloated public sector, and steep cuts in supplemental pensions paid to retirees.
According to Greek officials, the political leaders are closing in on a deal that would reduce those supplementary pension benefits by about 20%, while the cuts in public-sector payrolls will likely be agreed to. Two-month bonus salaries now paid to Greek workers each year are likely to be kept intact, but could be trimmed.
Signs of popular protest are growing. Greece's two major umbrella unions said Monday they will hold a 24-hour nationwide general strike Tuesday—the latest is a string of strikes called to protest successive waves of austerity measures Greece has taken in the past two years.
The new cuts also are likely to face resistance among lawmakers, many of whom have already balked at voting for new cutbacks. Two Socialist lawmakers have signaled they would vote against the reforms—although it is unlikely that a revolt by deputies will imperil the government's super majority in parliament. The three parties that make up the coalition control 252 seats in the 300-member parliament.
Political leaders have agreed on some of the basic points of the international lenders' demands. Among them are spending cuts equal to 1.5% of gross domestic product in 2012, steps to recapitalize Greece's banks and measures to boost the country's flagging competitiveness.
Athens is also in talks with private-sector creditors over a planned €100 billion debt write-down that is also a precondition for the new loan.
The talks with the private-sector creditors are said to be very close to being finalized, after the creditors agreed to accept lower interest rates on the new bonds Greece will offer after the write-down. But there are concerns in other European capitals and within the IMF that the debt restructuring doesn't go far enough in reducing Greece's debt burden.
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