Greek PM claims consensus on austerity steps

Greek Prime Minister Lucas Papademos has said there was “total convergence” among political allies on new austerity measures needed for a second bailout and debt cuts to avert default.

“This will allow us to negotiate in the best conditions,” Papademos said on Sunday after talks with his Socialist predecessor George Papandreou, Antonis Samaras, head of the centre-right New Democracy party, and far-right leader George Karatzaferis.

Now that Greece is close to clinching a long-awaited debt swap deal with private bondholders, attention is shifting to difficult talks with lenders who want new austerity measures before they hand over funds from a $170bn bailout.

But the mix of spending cuts and reforms to reshape the economy risk heaping more misery on austerity-weary Greeks in the short term and few politicians want to be associated with them as they gear up for elections expected as early as April.

Officials from the troika of lenders – the European Central Bank, the European Union and the International Monetary Fund – have demanded Greece make extra spending cuts worth 1 per cent of its GDP – or just above $2.6bn – this year, including slashing defence and health spending as well as cutting some state entities.

But Greece’s European partners are increasingly worried the country no longer has the will or ability to push through change.

European paymaster Germany is pushing for Athens to relinquish control over its budget policy to European institutions as part of discussions over a second rescue package, a European source told Reuters.

Finance Minister Evangelos Venizelos reacted angrily to the suggestion on Sunday, saying Greece was perfectly capable of making good on its promises.

“Anyone who puts a nation before the dilemma of ‘economic assistance or national dignity’ ignores some key historical lessons,” Venizelos said in a statement before heading to Brussels for a European Union summit on Monday.

Euro zone leaders at the summit will have the chance to discuss Greece’s debt swap deal, which both sides late on Saturday said was close to being finalised after months of negotiation.

Under the swap, private creditors take a 50 per cent cut in the nominal value of their Greek holdings in exchange for cash and new bonds. Their actual losses are expected to be much higher depending on the coupon, or interest rate, involved.

Without a deal and a subsquent release of funds from the bailout plan, Greece would sink into an uncontrolled default that risks spreading turmoil across the euro zone.