|Lucas Papademos says that workers will have to deal with lower income in order to save the euro [Reuters]|
Greece’s Prime Minister has urged defiant union leaders to accept further income losses, warning that vital international rescue loans could otherwise dry up and force the debt-crippled country into a disorderly default in March.
Lucas Papademos said on Wednesday that decisions made over the next few weeks before a mid-January visit by international debt inspectors, known as the troika, will determine whether the country holds onto the euro or reverts to its pre-2002 currency, the drachma.
Greece has been subsisting on a $142bn (110bn euro) bailout from its European partners and the International Monetary Fund since May 2010, and in return has imposed deeply resented austerity measures.
“Workers and pensioners have shouldered a disproportionately high burden of the crisis, and now have no more leeway for further cutbacks.”
– Greece’s largest labour union
The country is negotiating to finalise the details of its second international bailout, for $169 billion (130bn euros).
“Without the agreement with the troika and the resulting funding, Greece faces an immediate danger of disorderly default in March,” Papademos told union leaders and employers’ federations, according to a transcript provided by his office.
“If we want to secure our most significant achievements, participation in the euro and avoidance of a massive, vertical income devaluation that a disorderly bankruptcy and exit from the euro would lead to … then we must accept a short-term income reduction,” he said.
But the country’s biggest labour union, the GSEE, ruled out any further income losses saying that Greeks had suffered enough from two years of harsh austerity.
Papademos said the troika has called for a re-examination of labour costs, to boost lagging competitiveness and fight high unemployment, and warned that, unless significant action is taken, the country will not receive its next vital installment.
“If we do not make the necessary adjustments, it is to be taken for granted that we cannot expect that the other EU countries and international organisations will continue to finance a country that does not adjust to reality and does not tackle its problems,” he said.
Immediate union response was chilly.
After talks with Papademos, GSEE chief Yiannis Panagopoulos insisted that the national collective wage agreement, which includes minimum wage provisions and those of holiday pay was not up for negotiation.
The extra two salaries per year have been slashed in the public sector as part of austerity measures.
“Workers and pensioners have shouldered a disproportionately high burden of the crisis, and now have no more leeway for further cutbacks and reversals in labour relations,” a GSEE statement said.
Troika officials are due in Athens on January 15.
Key details of the second bailout deal are still being negotiated, above all the provision under which private creditors such as banks and investment firms would take a 50 per cent cut in the face value of the Greek bonds they hold.
Negotiating the details of the second bailout and ensuring Greece gets the funds is the main mandate of the temporary coalition government headed by Papademos, a former central banker appointed in November after a political crisis forced Socialist prime minister George Papandreou to resign.
On Wednesday Papandreou told a top party meeting that he will not seek re-election as Socialist leader, according to party officials.
Papandreou also pledged to boost tax revenues, famously claiming that “the money is there” to be collected.
His government failed to meet revenue targets despite raising the top sales tax bracket to 23 per cent and imposing a hugely unpopular property tax that punishes noncompliant households by cutting off their power supply.