German Leaders Maintain Pressure as Greek Parliament Debates Budget Cuts

By Patrick Donahue and Rainer Buergin - Feb 13, 2012 12:39 AM GMT+0700

German leaders kept up pressure on Greece as the struggling euro member moved closer to approving an austerity package designed to stave off economic collapse.

German Economy Minister Philipp Roesler said the lower house of parliament in Berlin could put off a vote for Greek financing this month if the government in Athens and opposition parties fail to approve measures today. Greece has to show that “it’s worth it” to call a meeting, Roesler told ARD public television. Finance Minister Wolfgang Schaeuble told newspaper Welt am Sonntag that Greece “will be saved in one way or another,” though the government has to do its “homework.”

As Greek lawmakers are today debating austerity measures to win approval for a loan, European finance ministers and private creditors this week will decide on a plan to shepherd Greece through a bond sale next month. Still, Schaeuble told German lawmakers on Feb. 10 that Greece was missing deficit goals, suggesting that the measures may fall short in rescuing Greece.

“I’m really wondering now whether so much damage has been done that this marriage no longer can be rescued,” Erik Nielsen, chief global economist at UniCredit SpA in London, wrote today in a note to clients. He predicted that the measures would be approved and that Greece will be able to make a 14.5 billion-euro ($19 billion) bond payment on March 20.

Budget Into Law

European finance ministers ended a meeting last week with Luxembourg’s Jean-Claude Juncker saying Greece must turn budget cuts into law, flesh out 325 million euros in reductions and have major party leaders sign up to the program so they don’t retreat after elections. Another extraordinary meeting is set for Feb. 15, where ministers must approve the Greek accord.

Chancellor Angela Merkel plans to ask lawmakers to vote on the next bailout on Feb. 27 if Greece approves the measures. Schaeuble told legislators that current plans would leave Greece’s debt as high as 136 percent of GDP by 2020, according to two people in the meeting. That compares with the 120 percent foreseen in the second bailout, down from about 160 percent of GDP last year.

Schaeuble was briefing on estimates from the European Commission, European Central Bank and International Monetary Fund -- known as the troika.

Send a Message

Greek Finance Minister Evangelos Venizelos today clashed with lawmakers, saying that “today at midnight, before the markets open, the Greek Parliament must send a message,” after Greek party leaders yesterday urged lawmakers to back the measure to secure the 130 billion-euro package and avoid a disorderly default. Venizelos has said the vote is tantamount to a decision on whether to remain in the euro area.

Before the final debate started, Prime Minister Lucas Papademos appealed to Greeks last night to support new measures, which include a 22 percent reduction in the minimum wage, smaller pensions and immediate job cuts for as many as 15,000 state workers.

“We are looking the Greek people straight in the eye with full knowledge of our historical responsibility,” he said in a televised address. “The social costs that come with these measures are contained in comparison to the economic and social catastrophe that will follow if we don’t adopt them.”

Bad Scenario

Greece has stumbled over the last two years in meeting reform targets in return for aid, citing a deepening recession now set to worsen. Unemployment climbed to 20.9 percent in November, as industrial production falls.

Joachim Fels, chief economist at Morgan Stanley, in a note to clients today repeated his assessment that policy makers shouldn’t rule out the “really, really bad scenario” of Greece leaving the monetary union.

Bondholders met separately in Paris on Feb. 9 to discuss accepting a debt swap for new 30-year bonds with an average coupon of as low as 3.6 percent. An agreement would slice 100 billion euros off more than 200 billion euros of privately held debt. Venizelos said the country needs to make a formal offer to private bondholders for a debt swap by Feb. 17.

To contact the reporter on this story: Patrick Donahue in Berlin at at pdonahue1@bloomberg.net, and Rainer Buergin in Berlin at at rbuergin1@bloomberg.net.