Greek PM pledges to avoid "catastrophe"

Updated: 10 February 2012 17:57

Greek Prime Minister Lucas Papademos says the country must do whatever it takes to approve a bail-out deal and avoid catastrophe.

Greek Prime Minister Lucas Papademos says the country must do whatever it takes to approve a bail-out deal and avoid catastrophe. He added that cabinet members who disagreed had no place in the government.

"We cannot allow Greece to go bankrupt," Papademos told a cabinet meeting.

He was speaking after the leader of the smallest party in Greece's government of national unity said he would not support the EU-IMF bail-out terms and his Ministers resigned. Two other junior ministers also tendered their resignations over the past two days.

Outside parliament there have been violent clashes between demonstrators and police, as a two-day general strike continued.

At lunchtime, the leader of the far-right LAOS party in the national unity coalition, George Karatzaferis, said he would not support further austerity cuts demanded by the EU and IMF. His ministers then submitted their resignations.

This evening, the deputy foreign minister, who is a socialist, also stood down. The junior labour minister resigned yesterday.

Greece faces bankruptcy at the end of March because it must replay €14 billion in debts but does not have the money.

Euro zone finance ministers last night refused to release €130 billion in bail-out funds until parliament approves the deal and the government commits to implementing its terms by Wednesday.

"We are not going to vote," Mr Karatzaferis told a news conference. "Humiliation was imposed on us. I do not tolerate this. And I do not allow it, no matter how hungry I might be," he added.

LAOS has 16 deputies in parliament, in the coalition which is backed by 252 deputies. If the two other major parties, the Socialists and the conservatives, approve it, the austerity package would still pass.

Euro zone wants cast-iron commitments

Greece had announced yesterday a last-minute agreement among coalition parties on alternative ways of finding budget savings demanded by the European Union and International Monetary Fund.

But it turned out that in the eyes of euro zone finance ministers there was still a shortfall, and they were not prepared to accept a "general agreement" by Greek politicians on austerity measures.

Instead the euro zone wants cast-iron commitments on the numbers. Euro zone ministers demanded that Greek lawmakers formally approve the measures, which include additional structural spending cuts of €325m euros for 2012.

They also want a written pledge from coalition leaders that they will implement the reforms, Eurogroup chief Jean-Claude Juncker told a news conference in Brussels. If those conditions are met, the Eurogroup would meet again on Wednesday, he said.

There are growing signs that the tone of exasperation over the two-year Greek crisis has risen sharply at euro zone level. The remark by Noyer, who also sits on the policy council of the European Central Bank, is one example.

"Greece still has some homework to do," added Dutch Finance Minister Jan Kees de Jager.

If Greece does not obtain aid soon, it could default on €14.5 billion in bond reimbursements on March 20, which would roil the euro zone and possibly hamper a global economic recovery.

But the tough position by European leaders echoes a change recently in the tone of comment which until now held that a departure of Greece from the euro zone could not be contemplated.

Greek Finance Minister Evangelos Venizelos told reporters in Brussels that Greece's place in the euro zone was in the hands of the country's conservative party, a coalition partner with his socialists.

"It must decide - if they want (Greece) to stay in the euro zone, they have to say so clearly. If they don't, then they have to say that clearly as well," Venizelos said.

Analysts warn that even if Greek manages to cut its €350 billion in debt, it will still face serious challenges. Athens could struggle to boost crucial tax receipts and the economy is not poised to compete effectively against global rivals, economists note.

EU economic affairs chief Olli Rehn said euro zone partners were "seriously considering" opening an escrow account for Greece, which would block a portion of state revenues to guarantee the repayment of bail-out loans.

A Franco-German proposal is "one possibility for reinforcing surveillance and effectively implementing the programme," he said.