Papademos has ‘full party support’ as talks continue

Greek Prime Minister Lucas Papademos says he has the backing of leaders from the three political parties supporting his interim government, as international creditors increase the pressure on Greece to make deeper spending cuts to secure new funding.

The party leaders are in “complete agreement” with the government on continuing talks with private and international creditors, the prime minister said in a statement yesterday after meeting in Athens with former prime minister George Papandreou of the socialist Pasok party, New Democracy party chief Antonis Samaras and George Karatzaferis, head of the Laos party.

Talks “aren’t easy,” he said before flying to Brussels to meet European leaders.

“If this process isn’t successfully concluded then we face the spectre of bankruptcy, with all the dire consequences for society that entails,” Papademos said an emailed statement.

European leaders meet in Brussels today to draw up rules to strengthen governance of the eurozone after Greece sparked a wave of financial turmoil that still threatens to splinter the euro area.

With Greece struggling to meet the terms of bailout agreements struck over the past two years and facing a €14.5 billion bond payment on March 20, policymakers are discussing plans to directly intervene in Greek budget decisions, two eurozone government officials said yesterday.

That prospect has been rejected by Greek finance minister Evangelos Venizelos and officials from all the Greek parties supporting Papademos, as well as other parties represented in parliament.

The possibility of a European budget commissar for Greece emerged a day after the country’s international creditors, known collectively as the troika, said the country needed deeper spending cuts to meet the 2012 deficit-cutting conditions of a second bailout package.

After two years of wage cuts and tax increases, the IMF estimates Greece’s 2011 deficit at about 9% of GDP, down from 10.6% in 2010.

The economy was expected to shrink about 6% last year, according to the estimates from latest IMF figures, compared with an estimate of 3.8% made in June, and another 3% this year.

Papademos, who replaced Papandreou in the prime minister’s office in November charged with securing a €130bn financing package, has repeatedly warned Greeks to expect lower wages and pensions as part of reforms aimed at keeping the country in the euro and bolstering competitiveness.

National elections are to be held once funding is secured.

Part of the financing package, Greece’s second in less than two years, entails a debt swap with private creditors that will lop €100bn off the privately-held €200bn of Greek debt. Greece and its private creditors said yesterday that they expect to complete the accord this week after bondholders signalled that they would accept demands from European governments for lower interest rates.

The sides are “close” to completing a voluntary exchange within a framework outlined by Luxembourg Prime Minister Jean- Claude Juncker, according to the Institute of International Finance, which was negotiating on behalf of private creditors.