Greece to agree bailout as Germany calls for action

The austerity bill sets out 3.3 billion euros in wage, pension and job cuts as the price of a 130-billion-euro rescue package from the European Union and International Monetary Fund – Greece‘s second since 2010.

Mr Papademos said parliament had a historic responsibility to back the bill, or face catastrophic consequences if Greece misses a March 20 deadline to service its debt.

“A disorderly default would set the country on a disastrous adventure,” he said in a televised address to the nation. “It would create conditions of uncontrolled economic chaos and social explosion.”

“The country would be drawn into a vortex of recession, instability, unemployment and protracted misery and this would sooner or later lead the country out of the euro.”

Read more from our economics editor Faisal Islam: The cauterisation of Greece

On a day of dire warnings and stormy debate, leaders of the ruling coalition told uneasy lawmakers on Saturday to support the bill or be dropped from party lists for an election that could come by April.

Athens faces a March 20 deadline to meet debt repayments of 14.5 billion euros. If the rescue package is put in place, its private sector creditors will have to accept a 70 percent reduction in the value of their holdings.

The effort to ease Greece’s huge debt burden has brought thousands into the streets in protest, and there are signs of a small rebellion among lawmakers made nervous by the extent of the cuts and by how voters might punish them in the next election.

At least 20 deputies from the two main parties in the Papademos coalition threatened on Saturday to vote ‘No’ – but the bulk of the coalition’s 236 MPs are still all but certain to approve the package.

Six members of his cabinet have resigned. More demonstrations are expected in front of the parliament on Sunday, after clashes between police and black-masked protesters on Friday.

German pressure

Eurozone paymaster Germany has ratcheted up the pressure, saying Europe needed action, not words. “The promises from Greece aren’t enough for us any more,” German Finance Minister Wolfgang Schaeuble said in an interview published on Sunday in Welt am Sonntag newspaper.

German opinion polls show a majority of Germans are willing to help, Schaeuble said, “but it’s important to say that it cannot be a bottomless pit.

“That’s why the Greeks have to finally close that pit. And then we can put something in there. At least people are now starting to realise it won’t work with a bottomless pit.”

The promises from Greece aren’t enough for us any more. German finance minister Wolfgang Schaeuble

“Greece needs to do its own homework to become competitive – whether that happens in conjunction with a new rescue programme or by another route that we actually don’t want to take…”

When asked if that other “route” meant Greece would have to leave the euro zone, Schaeuble said: “That is all in the hands of the Greeks themselves. But even in the event (Greece leaves the euro zone), which almost no one assumes will happen, they will still remain part of Europe.”

Devil in the detail

The assembly’s finance committee approved the bill on Saturday and a vote is expected late this evening.

The measures include 300 million euros in pension cuts and a 22 percent reduction in the minimum wage, which currently stands at about 750 euros per month.

The bill aims to cut Greece’s bloated state sector workforce by about 150,000 people by 2015.

It also provides for a bond swap to ease Greece’s debt burden by cutting the real value of private investors’ bond holdings by some 70 percent.

Finance Minister Evangelos Venizelos said the deal had to be approved by Sunday or the country would miss a February 17 deadline to submit the debt swap offer to its private-sector bondholders.

Eurozone finance ministers also expect Greece to explain by then how 325 million euros out of this year’s total budget cuts – as yet unspecified – will be achieved before it agrees to the bailout.

Bailout documents released on Friday left blank the amount of the full rescue package, and Venizelos said Greece might need 15 billion euros more to save the country’s banks, confirming estimates from EU officials.

The EU and IMF have been exasperated by a series of broken promises and weeks of wrangling over the bailout.

They say they will not release the aid without clear commitments by the main party leaders that reforms will be implemented, whoever wins the next election.