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| Working under duress: PM Lucas Papademos (L) and Finance Minister Evangelos Venizelos |
 Just a month before Greece’s new bailout loan contract is to be sealed, feverish negotiations are underway to secure consensus among the coalition partners and between organised labour and business. Prime Minister Lucas Papademos’ meeting with Pasok leader George Papandreou, scheduled for January 15, will conclude a series of meetings with the heads of the three coalition parties, who are dragging their feet on measures that will chip away further at labour rights and privileges. The fierce succession battle within Pasok, with more candidates to succeed Papandreou as party leader emerging every week, has proved another key impediment to governmental stability. A planned meeting of the party’s national council on January 14-15 is expected to clear up the timetable and procedures. But the reluctance of both Pasok and New Democracy ministers to approve tough reform measures is the key problem, and Papademos is expected to call a meeting of the party leaders to agree on an action plan for the next months. The vociferous intervention of German Chancellor Angela Merkel and French President Nicolas Sarkozy, who made clear that more painful austerity measures must precede the 130bn euro loan deal to be concluded in February, has upped the pressure on the government.
Hardline dialogue Resisting the urging of the government to agree to a reduction of labour costs, the General Confederation of Greek Labour (GSEE) is entering a dialogue with Greek business with a hard line against any changes to the national collective bargaining contract, to the system of holiday bonuses (the so-called 13th and 14th salaries) or to the slight wage increases to which employees are entitled every three years. The country’s largest private sector labour union is ready to discuss only reductions in nonwage labour costs, such as employers’ insurance contributions, as long as these do not further jeopardise the viability of the teetering insurance funds. But a reduction of insurance contributions by employers also most likely spells future pension cuts, since the state can hardly afford to replenish the funds’ revenue losses. For its part, the government is signalling that if the business-labour dialogue flounders, it will legislate for changes to the existing regime of labour relations, so as to meet the bottom-line demands of the troika. In light of those threats, the GSEE plans to meet with parliamentary party leaders, in an effort to persuade them to oppose further wage and pension cuts. As with the troika, competitiveness has become the mantra of the government, though many economists and pundits reject the argument that high wages are the root cause of the lack of competitiveness of the economy. Government spokesman Pantelis Kapsis has stressed in a barrage of interviews that if the “social partners” (business and labour) do not reach agreement, then the government will decide on a “package solution”, but without across-the-board wage cuts. Kapsis said that a reduction in the minimum wage or in holiday bonuses are not on the cards “at the moment”, but he argues that “enterprise contracts” (between the owner and employees of a single business), which introduce wage cuts in individual businesses, should have been adopted more broadly. Layoffs ahead? Another troika demand that has been caught up in a political and administrative quagmire is cutting state expenditures through civil service layoffs. Fixing the fiasco of the labour reserve - which failed to achieve its objective of substantially reducing the number of civil servants by paying those near pension 60 percent of their salary for a year before laying them off - is another key priority that may have to wait until after elections. It is now generally agreed that the labour reserve was a rush job, hastily planned to meet creditors’ requirements before the disbursal of the sixth tranche of bailout loans to Greece. A sweeping new bill that incorporates various troika demands, from the abolition or merger of state agencies to the opening of closed trades, may fare better than previous reform laws. New Democracy announced that it will support the bill overall, though it may vote down certain clauses if they are not modified. New Democracy leader Antonis Samaras appears intent on supporting the Papademos government, while distancing himself from certain unpopular policies, such as cuts in auxiliary pensions. Samaras is reportedly proposing alternatives to the pension cuts, but mainly he advocates putting off such decisions until after elections.
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While technocrats haggle, ordinary people feel the painGreece: The debt crisis is getting worse, not better, and Greeks are wondering how much more they can take A new Greek tragedy is being written. Five years of economic chaos have torn great holes in the social fabric of the country. There has been a surge in the number of children abandoned by their parents. A kindergarten teacher in Athens found a heartbreaking note about one of her four-year-old pupils in the weeks before Christmas. "I will not be coming to pick up Anna today because I cannot afford to look after her," it read. "Please take care of her. Sorry. Her mother." It is just one snapshot from a nation in pain. More than 878,000 people are unemployed – 18 per cent of the workforce. Athens officials say that the numbers using the city's homeless shelters and soup kitchens is up by 25 per cent since the economic crisis began. Hospitals are reported to be understaffed and starved of supplies. And, as became all too clear when talks with bond-holders stalled yesterday, there is no end in sight to the agony. The International Monetary Fund expects the economy to shrink by a further three per cent in 2012. Others are still more pessimistic. One forecaster has predicted a whopping 7 per cent contraction. A "Troika" of inspectors – made up of officials from the European Central Bank, the European Commission and the International Monetary Fund – will return next week to check that the government is delivering on its reform commitments, slashing public spending. They will receive updates from the prime minister, Lucas Papademos, and the finance minister, Evangelos Venizelos, and decide whether to release the next slice of funds that Greece needs to redeem €14bn of its bonds in March. The last visit from the Troika prompted mass demonstrations. Crowds chanted slogans such as "Don't let capitalism kill you" and "Now or never: time to revolt". Greek unions – which are preparing another strike next week – argue that the massive public austerity being demanded of the Greek government by the Troika is driving the economy into the ground, making the situation worse, not better. A growing number of economists outside Greece agree. But the fate of ordinary Greek citizens also resides in the unsentimental clutches of private sector financiers. Germany, the biggest single contributor to the EU/IMF Greek bailout, began pushing hard last year for something called "private sector involvement" in the bailout. This meant that the holders of Greek bonds would write down the value of their investments. Germany did not like the idea of pumping ever more money into Greece merely so that the country could pay out those funds to private bondholders. In October, a 50 per cent bondholder "haircut" was announced. Eurozone leaders agreed the deal with the Institute of International Finance (IIF), the lobbying group of the global banking industry. But the IIF only really speaks for the large banks of the continent. A number of small hedge funds have also bought up cheap Greek bonds and are refusing to take a haircut on their investment. So now there is a stand off. The German Chancellor, Angela Merkel, warned at a press conference in Berlin this week that Greece will not receive the next instalment of its bailout funding unless the deal is reached. Charles Dallara, chief executive of the IIF, flew to Athens this week for meetings with Greek ministers in the hope of brokering a deal between the country and its creditors. Yesterday those talks broke down. Some believe Germany will get its way. Others expect the hedge funds that are holding out to be paid off. No one really knows. Yet even if the deal is ultimately done, many say that Greece needs to be let off more than 50 per cent of its debts. And the number of economists who take the view that Greece can only return to sustained growth if it leaves the eurozone, defaults on its debts and introduces its own devalued currency are growing. Every new month of economic misery brings the prospect of Greece leaving the euro closer. The great unknown, though, is whether a eurozone exit would mark the beginning of the end of this tragedy for Greece, or a new, darker act. The Downgrade: What it means for Europe France Credit downgrade is an embarrassment for President Nicolas Sarkozy. But the move was long expected by markets. Greece Economy still contracting. Social unrest rising. Athens needs to redeem €14bn of debt in March. Italy Sold €5bn of debt yesterday, but market demand was subdued. Later its credit rating was cut. Mario Monti’s government faces high costs for long term borrowing. Germany Issued debt this week so popular it had a negative yield – means Germany makes profit by borrowing. Britain UK debt regarded as a safe haven, like Germany's. British 10-year bond yields have been hitting all-time lows. | 
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