Under strong pressure from the European Commission and Paris, where German Chancellor Angela Merkel met French President Nicolas Sarkozy on 6 February, the Greek political leadership has been called on to conclude the terms for a two-fold agreement to save the country from total financial collapse in mid-March, when a €14.4 billion bond will mature.
Athens will be unable to honour this debt without the EU-ECB-IMF troika's help and will go bankrupt, probably taking more Eurozone member states down with it. Greece is expected to conclude a deal with its private lenders the banks under Private Sector Involvement (PSI) to cut down its sovereign debt by at least €100bn and, in tandem, to agree with the troika the terms of a new soft-loan package of €130bn, to take care of the country's financial needs until Athens is able to self-finance its maturing debt, hopefully by 2015.
The schedule, however, has become very tight because after being concluded the two deals must be passed through 16 further parliaments, in order for Greece to be eligible for more soft loans before the March bond matures.
This is why Merkel, Sarkozy and the Commission on 6 February issued tough statements pressing Greek leaders to agree on the deeply unpopular economic measures that are to accompany the deal with the troika for the second soft-loan package.
To this effect, on the evening of 5 February, the leaders of the three major Greek political parties, who are to under-sign all agreements and also vote for the unpopular economic measures in parliament, met with interim Prime Minister Loukas Papademos and came to an understanding comprising the following broad elements:
*Measures should be taken to reduce state expenses by 1.5% of GNP.
*Subsidiary pension funds should secure their long-term viability.
*The competitiveness deficit has to be addressed by reducing the salary and non-salary production costs aiming at increasing employment and economic activity.
*Greek banks should be recapitalised through a combination of measures securing public interest and their operational autonomy.
In addition, the largest parliamentary party PASOK issued an announcement saying that the party “agreeing on everything” was essential for the country to avoid bankruptcy.
These measures, however, need to be clarified and the details are to be agreed on 7 February in a further meeting between the three leaders and the prime minister.
A point of friction is the extent of the reduction of the legal minimum wage and the timespan of the sectoral labour agreements between the social partners.
The final texts of the two agreements have to be ready before the afternoon of 8 February, when the Eurogroup is set to convene in person or via teleconference.