FT: Greece braced for crucial votes

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Antonis Samaras, the Greek prime minister, invoked the prospect of his nation tumbling out of the eurozone as he sought to rally wobbling MPs ahead of critical parliamentary votes that could determine whether the government gains access to a desperately-needed €31.2bn loan payment.
“We have to save the country from catastrophe . . . Leaving the euro would be a nightmare and we intend to avert it,” Mr Samaras said.

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The prime minister was appealing to MPs from his centre-right New Democracy party to back an unpopular slate of fiscal and structural reforms, designed to save some €13.5bn of government spending, which Greece has promised its international creditors in return for its next loan payment. A vote on the package is due on Wednesday, followed by another high-stakes vote at the weekend on Mr Samaras’ proposed 2013 budget.
The long-delayed loan payment is being counted on to breathe life into a moribund economy by recapitalising Greece’s banks and settling bills with government suppliers. Agreeing the reforms is also a precondition for Greece’s eurozone partners to overhaul the country’s €174bn bailout so that it is less onerous.
Yet the challenge for Mr Samaras of mustering political support for further sacrifice has become ever greater as the country heads for its sixth year of recession and no relief in sight.
The Greek budget report last week suggested that previous rounds of austerity had so weakened the economy that they had raised – not lowered – Greece’s debt-to-gross domestic product ratio even beyond analysts’ worst-case scenarios.
That outcome has created a consensus among eurozone governments about the need to refashion the bailout and to find at least €13bn-€18bn in fresh financing to keep Greece solvent through to the end of 2014. Mr Samaras and his eurozone partners are hoping to have both elements – the reforms and the revised bailout – in order by a meeting of eurozone finance ministers in Brussels on Monday November 12.
The first step will be convincing Greeks to swallow the new reforms, which include more job and salary cuts. Mr Samaras has promised this dose of medicine will be “the final one”.
Analysts were optimistic the package will scrape through, if only by a few votes. One former government minister said: “Fear of the consequences – having to fight another election, the possibility of a Grexit within months – should work in the government’s favour.”
Yet Mr Samaras’ margin for error has narrowed since Fotis Kouvelis, leader of Democratic Left, the junior member of the three-party coalition, withdrew his support because of his opposition to labour market reforms. Mounting instability in the PanHellenic Socialist Movement (Pasok) has also threatened the coalition’s narrow majority. In an effort to encourage defections, Greece’s two biggest trade unions have called for a 48-hour general strike, beginning on Tuesday.
As Mr Samaras rallies to hold the coalition together in Athens, eurozone leaders will try to agree changes to the bailout without further angering their own voters.
According to people briefed on their discussions, officials are close to an agreement that would have Greece rely heavily on short-term treasury bills for the extra €13bn-€18bn. The plan must still be approved by the European Central Bank, since most short-term debt issued by Greece is bought by Greek banks with money borrowed from the eurosystem.
In March, eurozone leaders had hoped the bailout and related reforms would allow Greece to reduce debt levels to 120 per cent of GDP by 2020. But budget numbers released last week – which estimates debt levels peaking at 192 per cent in 2014 – have dashed those hopes. Instead, eurozone officials are now looking at delaying the target to 2022 and raising it to as much as 125 per cent.
In addition, they are hoping to strike a deal with the ECB where the bank would give up about €15bn in profits on Greek bonds it bought at the start of the eurozone crisis. The ECB cannot write off the profits, so officials are mulling a plan where they would be paid to national central banks, which would then return them to national treasuries. Eurozone governments would then agree to return the profits to Athens.
Another idea under consideration is cutting interest rates on bailout loans to Greece by another 150 basis points and extending maturities. A plan to buy back Greek bonds at current depressed prices and retire the bonds is also being discussed.
For Greece, the price of any leniency could be tougher conditions that would further erode its sovereignty. Eurozone officials, for example, are finalising a German-inspired system of “enhanced compliance” measures that could force automatic, across-the-board budget cuts if Greece falls behind the new programme’s fiscal targets.