European leaders pressed Greece on Monday to quickly resolve deadlocked talks over a new international bailout and are threatening to let the country default if Athens does not agree to new economic reforms.
In recent weeks, negotiators have been struggling to produce an agreement between Greece and private investors over how to reduce the country’s debts. At the same time, other European nations and the International Monetary Fund have been trying to negotiate $170 billion in additional international loans.
But progress stalled in recent days over what amounts to a European and IMF ultimatum to the country: Either move forward with a politically painful restructuring that Greek officials have long promised but failed to deliver, or international lending will stop and the country will be forced to default on its bond payments as early as next month.
A default by Greece could disrupt European and world financial markets and raise fears that other highly indebted nations in the euro zone would follow suit and that Greece would drop the common currency. But after two years of failed efforts to fix Greece, European and IMF officials see few options for dealing with a Greek political establishment that has slashed government spending to try to control its runaway debt but has not made more fundamental changes considered necessary to revive the economy.
The coalition government of Prime Minister Lucas Papademos remains at odds over the demands of international lenders, who are calling on Greece to trim private-sector wages to make Greek businesses more competitive, to loosen restrictions on some highly regulated professions and to make other changes that the IMF feels are needed.
Late Monday, the Greek government said it would eliminate the jobs of 15,000 state workers this year — a down payment on the 150,000 positions that Greece has promised to pare from its 750,000-member public work force over the next three years either through attrition or dismissals.
According to news and wire service reports from Athens, a planned meeting between Papademos and his coalition partners was delayed until Tuesday. Greek unions have called a general strike for the day.
Elsewhere, top European officials were growing more impatient with the standoff over completing a new international program for Greece.
“I honestly can’t understand how additional days will help. Time is of the essence. A lot is at stake for the entire euro zone,” German Chancellor Angela Merkel said at a Monday news conference in France after weekend talks failed to produce a deal.
Luxembourg Prime Minister Jean-Claude Juncker, head of the caucus of 17 nations that use the euro, said in an interview with Germany’s Der Spiegel that European officials are ready to let Greece default and won’t provide more money to Athens unless it complies with the economic changes being demanded.
“If we were to conclude that everything is going wrong in Greece, then there won’t be any new aid program, which would mean that Greece will have to declare bankruptcy in March,” Juncker said. “Greece knows that, and the mere prospect of something like that happening should lend the Greeks strength where they are currently showing signs of paralysis.”
Greece needs an estimated $170 billion in additional loans from the European Union and the IMF to cover its deficits and payments on maturing bonds for another three years while it tries to revive its moribund economy. An earlier three-year bailout, begun in May 2010, fell off track as the nation’s economy slipped into a deeper-than-expected recession and officials failed to make promised economic fixes.
The amount of the additional loan depends on the outcome of separate talks with banks, hedge funds and other private investors who hold around $280 billion in Greek bonds.
Those talks are aimed at a deal that would write down the face value of those bonds by at least 50 percent. The aim is to bring Greece’s debt down to a target level of 120 percent of its annual economic output by 2020.
As the negotiations have dragged on, some analysts say that private investors may need to take losses as high as 70 percent of face value and that Greece may need even greater bailout loans down the road.
A resolution of the current talks “would prevent an imminent disorderly default,” analysts from Capital Economics wrote Monday. But, they added, “We would not be surprised if Greece eventually fails to live up to its end of the deal, prompting the bailout package to be withdrawn further down the line.. . .This crisis is still a long way from ending.”