Harsh Greek austerity measures OK'd by creditors

Electricity company employees of Public Power Corporation shout slogans in Athens, Greece, Feb. 9, 2012, during a protest against the Greek government's plans to privatize part of the power distribution service. / AP Photo

Updated at 11:32 a.m. ET

ATHENS, Greece - Taking negotiations to the eleventh hour, Greece announced an agreement Thursday on new austerity cuts demanded by its international creditors to release a euro130 billion ($173 billion) bailout, shortly before a crucial meeting of finance ministers in Brussels.

A statement from Prime Minister Lucas Papademos' office said talks "were successfully concluded" with representatives of the European Union, the European Central Bank and the International Monetary Fund — collectively known as the "troika".

Analysis: Greek agreement accomplishes nothing

The statement said leaders of the parties backing Papademos' coalition government had accepted the outcome of the talks with the three organizations.

"Therefore, there is a general agreement on the content of the new (bailout), ahead of tonight's meeting" of finance ministers from the 17 eurozone members in Brussels, the statement said.

A spokeswoman for Papademos' office said the deal will allow alternatives to the pension cuts rejected early Thursday during a marathon meeting of coalition party leaders. She did not elaborate on what the alternative proposals were.

The spokeswoman spoke on customary condition of anonymity.

Mario Draghi, the president of the European Central Bank, confirmed the latest stage in the austerity talks, telling reporters at a press conference in Frankfurt, Germany that the Greek party leaders had accepted the terms of the deal.

Although all the other cuts demanded by the troika were approved — including a 22 percent cut in the minimum wage, firings 15,000 of civil servants and an end to dozens of job guarantee provisions — party leaders had balked at new pension cuts worth an estimated euro300 million ($400 million), leaving the bailout in limbo and the threat of bankruptcy high.

The deal came shortly after Greek Finance Minister Evangelos Venizelos arrived in Brussels for talks on the new bailout with his colleagues from the 17 euro countries.

"It is up to the eurogroup to decide at the highest level if the conditions are in place to proceed with the second (bailout) program," said Amadeu Altafaj Tardio, a spokesman for the European Commission, one of the three institutions charged with negotiating the rescue conditions.

Also attending the meeting in Brussels will be Christine Lagarde, the head of the International Monetary Fund, and Draghi.

Greece needs the bailout by March 20 to redeem euro14.5 billion worth of bonds coming due.

A forced bankruptcy then would likely lead to the country's exit from the euro common currency, a situation that European officials have insisted is impossible because it would hurt other weak countries like Portugal, Ireland and Italy.

But financial analysts fear a chain reaction similar to the financial meltdown triggered by the collapse of investment bank Lehman Brothers in the fall of 2008.

Greece has been kept solvent since May 2010 by payments from a euro110 billion ($145 billion) international rescue loan package. When it became clear the money would not be enough, a second bailout was decided last October.

There is considerable resistance in Greece to further austerity, after two years of vicious spending cuts that have failed to drastically improve the state finances — instead fueling galloping unemployment and a deep recession.

Angry union leaders announced a 48-hour general strike for Friday and Saturday.

Federiga Bindi, senior fellow at the Center for Transatlantic Relations at Johns Hopkins University, worries that more austerity isn't the answer for Greece. She says more budget cuts and tax increases will be counterproductive, weakening the economy even more, causing tax revenues to fall and spending on unemployment benefits and other social programs to rise.

Ilias Iliopoulos, secretary-general of the ADEDY civil servant union, told the AP protest rallies will be held outside Parliament in central Athens on the two days, and on Sunday when lawmakers are expected to vote on the new austerity measures.

Previous anti-austerity protests have turned violent, and three people died in a bank torched by rioters in 2010.

After decades of government overspending, compounded by costly political patronage, tax evasion and a strong union movement deeply linked with governing parties, Greece is in a sorry mess: The economy is set to contract for a fifth consecutive year, the government still spends almost ten percent more than it earns and unemployment is at a record high of nearly 21 percent — with the number of jobless exceeding one million in November according to figures released Thursday.

Venizelos warned that Greece's "survival over the coming years" depends on the bailout and a related debt-relief agreement with private creditors.

"It will determine whether the country remains in the eurozone or whether its place in Europe will be endangered," he said early Thursday, after twelve hours of talks with party leaders and debt inspectors in Athens.

Jacob Funk Kirkegaard, research fellow at the Peterson Institute for International Economics, said the lack of a full agreement during Wednesday's talks highlighted the "certain amount of political theater involved here."

"The political leaders in Athens are campaigning," he said. "They need to be seen by the Greek population as fighting until the very last drop of blood. ... They are facing off against the Germans and IMF and the rest of the world."

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[jt92202]

Does anyone know if the government heads of Greece took any pay cuts during this or are they passing the buck to everyone else but themselves?? Just wondering, I didn't see anything in this story but I do know this is an on going story of cuts in Greece!

[jt92202]

I know that the public workers took a 25% pay cut but did that include those in charge of making all of these decisions????

[inketolstoy]

This is what happens when you keep kicking the deficit can down the road. We will end up begging China or Brazil or what ever country has been fiscally prudent to bail us out again or we will drag the world economy down with us. Ley's start reducing speeding now, before we are forced to austerity measures.

[Jesus_Loves_Children]

Birth control and the Catholic Church

Archbishop Timothy Dolan of New York is terribly misguided in his judgment. He is a male chauvinist who does not understand what having a family is, the planning and preparation on the welcoming of a new baby in this difficult world. Frankly, if I was Jesus Christ I would fire the G_d d_mn_d bastard and shut the whole G_d d_mn_d organisation!

[rightbehind]

The Catholic Ideology is really about increased numbers they can call Catholic. They are not concerned about personal lives, only the numbers they can call catholic.

[ricscore]

This is an example of Obama's vision for the USA. Wake up American, were not far behind Euro Trash. Its time for Obama to go, vote for anybody except Obama.

[rightbehind]

A countries wealth is its resources and this country is abundant. No matter what ideology you believe in your not going to be successful if you live in the middle of a desert and your only commodity is sand. Republicans are helping the wealthy rob this entire nation. The people of Greece need to plant their victory gardens now and print their own money. Let the parasites suffer the austerity.

[dzaffina]

this is an example of what 6 years of republicans owning every aspect of government, and passing unchallenged policies that led to the crash of the world economy. greese is now a third world country, just where the the republicans want lead our country into. privitize profit, socialize debt.

[credibility2]

This should have been done months ago, but of course, the government probably had to check in with the unions to make sure things were palatable to prevent destructive demonstrations.

[TheVarsityClub]

Months ago they began dropping hints that many were about to get screwed out of their pension to get a reaction.

The reactions coming and it will probably be in the form of civil war.

This "world economy" thing is turning out to be an in creditably bad idea. Let's put all our eggs in one basket and see what happens! This proposal will only put off the inevitable, which is Greece collapsing.

Italy will fall next, the Euro will become worthless, and ciaos will follow (along with mass hysteria).

[cheeksforus]

I have to agree with thevarsityclub, what our media does not tell us is how the corruption in Greece is staggering. I know a lot of people from Greece, they still have lots of family there and still visit regularly. The liberal media in the U.S. as well as the conservative's really don't want the American people to know what's coming around the corner. As Europe collapses and the economys fail it will impact the world but expect direct hits in the U.S., China and Russia.