Greece on ‘Knife Edge’ to Agree on Bailout

Posted February 5th, 2012 at 7:50 am (UTC-5)
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Greek Prime Minister Lucas Papademos is pressing his political allies to support a rescue package in order to avoid a government default, after his finance minister warned that just hours remain to clinch a deal.

Mr. Papademos called an emergency meeting after Finance Minister Evangelos Venizelos warned that the government has only until Sunday night to produce a second financing package. Venizelos made the statement after eurozone ministers threatened to cut off funds if Greece offers no proof of reforms. He said the moment is crucial, and that Greece is “on a knife edge.”

Athens has been attempting — unsuccessfully so far — to cut in half the debt it owes 32 large private financial institutions, a $130 billion reduction. At the same time, it is seeking approval for a new $169 billion bailout from the International Monetary Fund and the other 16 countries that use the euro currency.

On Friday, Greek unions and employers joined forces in an unusual alliance of labor and management to reject a demand from international creditors that they cut wages to help the government win approval for its second bailout.

The IMF and eurozone countries have demanded that Greek workers take pay cuts to make the country's economy more competitive with its trading partners. But the workers and their employers say wage cuts would diminish consumer spending in the country, and ultimately would reduce tax revenue for the government.

Greece says it needs the debt relief and new funding to avoid a default on $19 billion in bond payments due in March. Both the country's private and public creditors have demanded that the government adopt more unpopular austerity measures before they will approve additional assistance.