Greece reaches austerity deal

DEREK GATOPOULOS NICHOLAS PAPHITIS Associated Press Published:

ATHENS, Greece (AP) -- Greece has reached a tentative agreement on new austerity cuts demanded by creditors to release a €130 billion ($173 billion) bailout, hours before a crucial meeting of finance ministers in Brussels, Prime Minister Lucas Papademos' office said Thursday.

A spokeswoman said the agreement with the majority Socialists and the conservatives will allow alternative cuts to those rejected early Thursday during a marathon meeting of the three coalition party leaders. No details were available on what alternative measures would be chosen.

The spokeswoman spoke on customary condition of anonymity.

Mario Draghi, the president of the European Central Bank, confirmed the latest stage in the austerity talks, telling reporters at a press conference in Frankfurt, Germany that the Greek party leaders had accepted the terms of the deal. The ECB is involved in the debt talks along with the European Union and the International Monetary Fund -- known as the "troika".

Although all the other cuts demanded by the troika were approved, party leaders had, however, balked at new pension cuts, leaving the bailout in limbo and the threat of bankruptcy high.

The deal came just ahead of talks in Brussels between finance ministers from the 17 euro countries.

"It is up to the eurogroup to decide at the highest level if the conditions are in place to proceed with the second (bailout) program," said Amadeu Altafaj Tardio, a spokesman for the European Commission, one of the three institutions charged with negotiating the rescue conditions.

Also attending the meeting in Brussels will be Christine Lagarde, the head of the International Monetary Fund, as well as Draghi.

Greece needs the bailout by March 20 so it will have enough money to redeem €14.5 billion worth of bonds coming due. If it doesn't make that payment, it will be in default. Financial analysts fear that could set off a chain reaction similar to the financial meltdown triggered by the collapse of investment bank Lehman Brothers in the fall of 2008.

In addition to the budget cutting mandated by the troika, Greece is close to an agreement with private investors who hold nearly two-thirds of its debt to sharply reduce the country's borrowing costs.

Greece remains in a deep recession. Unemployment is 19.2 percent after the economy's fifth straight year of decline. Its government finances and its economy are being dragged down by costly political patronage, tax evasion and special protections for some favored trades.

There is considerable resistance in Greece to further austerity. The country has endured two years of vicious spending cuts, the economy is in its fifth year of recession and unemployment is at a record 21 percent rate. Angry union leaders announced a 48-hour general strike for Friday and Saturday.