“I’m more than unhappy with the political cliffhanger taking place in Greece over the past few weeks,” German Foreign Minister Guido Westerwelle told Der Spiegel magazine. 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. German Chancellor Angela Merkel plans to ask lawmakers to vote on the next bailout on Feb. 27, pending Greek approval. Schauble 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 last year. Schauble was briefing on estimates from the European Commission, European Central Bank and International Monetary Fund -- known as the troika. Greek Finance Minister Evangelos Venizelos on Sunday urged lawmakers to “choose the bad to avoid the worst” after Greek party leaders over the weekend backed the measures to secure the 130 billion-euro package and avoid a disorderly default. Before the final debate started, Prime Minister Lucas Papademos appealed to Greeks to support new measures, including 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.” Part of the rescue included a bond swap intended to slice Greece’s debt load. The swap for new 30-year bonds with an average coupon of as low as 3.6 percent would cut 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. The European Central Bank also came under pressure to extend relief.
ECB President Mario Draghi last week left open the possibility of passing up profit on Greek debt held by the central bank, though he rejected selling it to the European bailout fund at a loss. 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 repeated his assessment that policy makers shouldn’t rule out the “really, really bad scenario” of Greece leaving the monetary union. [Bloomberg]