ATHENS (Reuters) – Trade unionists, communists and pensioners angry at punishing spending cuts in Greece marched through central Athens on Wednesday as lawmakers set to work on legislation needed to secure payment of a second bailout for the debt-laden country.
Ringed by riot police, parliament debated a string of measures demanded by euro zone states in exchange for a 130 billion euro rescue, endorsed by finance ministers on Tuesday after hours of torturous negotiation in Brussels.
The bailout averts a chaotic default next month, but does little to allay doubts over Greece’s long-term financial and social stability as the country faces spiraling unemployment and a recession in its fifth year.
“Those people in there are traitors,” said construction engineer Antonis Malkos, 55, pointing at the parliament.
“Greece is an independent country, not a protectorate. When the program crashes, and it will crash, the lenders will take away our national wealth,” he said.
The comments reflected unease among Greeks over the terms of the new rescue package — the second in less than two years — giving Greece’s European partners unprecedented rights to inspect national finances and make sure it sticks to the deal.
Dutch Finance Minister Jan Kees de Jager, most vocal among mistrustful northern creditors, kept up a barrage of skepticism.
“To be honest, I have doubts, but it’s the best we could do,” De Jager told French daily Le Monde when asked whether Greece could implement the new bailout program.
He called for a strengthening of the euro area’s financial firewalls around Greece, combining the current temporary rescue fund with a new permanent 500-billion-euro fund due to come into force in July – a move so far opposed by Germany.
Clutching umbrellas, several thousand demonstrators snaked through the central square, as others huddled in the rain in front of riot police guarding parliament against a possible repeat of riots 10 days ago.
Credit ratings agency Fitch downgraded Greece further ahead of a planned bond swap under which it will enforce sharp losses on private creditors as part of the bailout program.
It was the first of widely expected cuts from all rating agencies because Greece will pass into technical default on its liabilities once the transaction is completed, which Finance Minister Evangelos Venizelos said must take place by March 12.
“The exchange, if completed, would constitute a ‘distressed debt exchange’,” Fitch said, downgrading Greece to C from CCC.
When the bond swap is done the sovereign rating will drop further to ‘restricted default’ and then will be re-rated again “at a level consistent with the agency’s assessment of its post-default structure and credit profile,” the agency said.
Under terms agreed on Tuesday, private holders of some 200 billion euros of Greek bonds will take a loss of 53.5 percent in the face value of their holdings to ease Athens’ debt burden.
WORK TO DO
Laws to enact the debt swap passed the parliamentary committee stage on Wednesday and are set to be adopted in plenary session on Thursday. Venizelos told the Economic Affairs Committee that the debt swap offer must be made by Friday.
The legislation requires that investors have at least 10 days to consider the transaction and creates so-called “collective action clauses” (CACs) forcing all bondholders to proceed with the transaction once it has won a specified level of approval.
According to the draft law, the swap will go ahead once a 50 percent quorum of bondholders have responded to the offer and the CACs will be activated once a two-thirds majority of that quorum have voted in favor of the swap.
The debt swap is a vital part of a plan to cut Greece’s liabilities from 160 percent of gross domestic product to 120.5 percent by 2020, according to the terms of the Brussels deal.
With a 14.5-billion-euro debt repayment due on March 20, caretaker Prime Minister Lucas Papademos told a late-night cabinet meeting on Tuesday to make sure all components of the rescue package were in place by elections slated for April.
He predicted stable growth in 2014 and 2015.
The conservative New Democracy (ND) partner in the current coalition with the PASOK socialists is pushing hardest for early elections but senior PASOK officials are less enthusiastic about a vote in which their party faces decimation.
“It would be good if the government of Lucas Papademos had more time. People must feel that something is changing,” PASOK Environment Minister George Papaconstantinou told Germany’s Die Zeit newspaper.
The ND can pull the rug from the coalition when it wants, and party sources told Reuters they could agree to elections on April 29 if necessary to complete the bond swap.
The austerity measures have triggered unrest, most recently on February 12 when hooded youths torched and looted buildings across central Athens as lawmakers backed more than 3 billion euros in cuts to wages, jobs and pensions.
Greeks are bracing for a decade of hardship. Doctors and medical workers have called a 24-hour strike for Thursday.
The complex deal reached on Tuesday buys time to stabilize the 17-nation currency bloc and strengthen its financial protection against a Greek default, but it leaves doubts about Greece’s ability to avoid difficulties in the longer term.
“The Greek deal is a sham. It’s designed to make everybody feel better,” U.S. investor Jim Rogers told Reuters Insider TV. “This Greece deal is only designed to get us through the French election and the American election and the German election.”
Market sentiment on Greece is still nervous, as evidenced by a bond auction at which Germany, regarded as Europe’s safe haven, sold 4.3 billion euros of new two-year paper despite an ultra-low coupon of 0.25 percent.
A draft enabling law for new budget cuts introduced into parliament on Tuesday showed that Greece now sees a budget deficit of 6.7 percent of gross domestic product, up from an original target of 5.4 percent in its initial 2012 budget.
The new figure retroactively reflected a more pessimistic view of the economy that already emerged last year as Greece and its lenders set to work on the bailout package.
Besides sending permanent foreign inspectors, the bailout plan requires Greece to set aside revenue to cover debt service into a special reserved account.
The plan reflects the mistrust between Greece and foreign lenders – in particular EU paymaster Germany – after years of backsliding by Athens, but it has riled Greeks whose sense of national pride has been hurt by the threat of bankruptcy.
Government coalition lawmakers in Berlin said Chancellor Angela Merkel may struggle to win a parliamentary vote next week’s on Greece’s bailout without the humiliation of having to rely on left-wing opposition support.
“I will vote ‘no’ whatever happens because this is purely about delaying an insolvency,” Klaus-Peter Willsch of Merkel’s Christian Democrats (CDU) told Reuters.
($1 = 0.7539 euros)