Pay cuts row delays Greece's vital debt deal

Debt talks vital to avoiding bankruptcy are at “a satisfactory level of agreement” but are being held up by a disagreement over drastic workplace reforms, A senior Greek official said today.

The official, with close knowledge of the negotiations between the government and rescue creditors, said other issues had been resolved following a “superhuman negotiation”. He asked not to be named because the talks were continuing.

Debt inspectors representing eurozone countries and the International Monetary Fund are pushing for tougher austerity measures and private sector pay cuts before approving a new €130bn bailout deal.

Unions and employers’ associations in Greece strongly oppose cuts in private wages, warning it would deepen a recession, already in its fourth year, with unemployment topping 19%.

“The (debt inspectors) want to make Greece more competitive and they have a certain view on how that should be done. We do not have the same view,” the official said.

European officials, meanwhile, piled pressure on Greece to accept more austerity.

Eurogroup chairman Jean-Claude Juncker told the German news magazine Der Spiegel that the danger of bankruptcy in March should give the Greeks “muscles where they now still have some symptoms of paralysis”.

Without the necessary reforms, he said, Greece should not expect continued “solidarity efforts from the others”.

Prime minister Lucas Papademos held a six-hour meeting with EU-IMF debt inspectors yesterday, a day before he is due to meet leaders of political parties supporting his coalition government – which all also oppose wage cuts in the private sector.

His finance minister Evangelos Venizelos joined the talks after a day of crisis meetings with cabinet colleagues and a two-hour conference call with eurozone finance ministers, joined by IMF chief Christine Lagarde and European Central Bank President Mario Draghi.

Without additional international support, Greece would go bankrupt, since it is unable to cover a €14.5bn bond repayment on March 20.

Tied to the new bailout deal is a proposed agreement with banks and private investors who hold some €200bn of Greece’s debt that would slash the country’s borrowing costs and save it from a default.

The investors would forgive €100bn of the debt in exchange for a cash payout and new bonds with more favourable repayment terms.

Top bank negotiators arrived in Athens last night for more talks, and are to be joined by Josef Ackermann, chief executive of Germany’s Deutsche Bank.

Mr Venizelos said negotiations for both landmark rescue deals had to be completed by tonight.

“There is a very small margin separating a successful end in (negotiations) from an impasse that could be due to a misunderstanding,” he said. “We stand at the razor’s edge.”