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Greek leaders agree to new spending cuts in bid to avert default

February 9, 2012 |  7:27 am

REPORTING FROM ATHENS -- Greece’s political leaders have agreed with foreign creditors on steep austerity cuts, officials in Athens said Thursday, hours after a dangerous deadlock stalled talks on a new rescue package designed to stave off a chaotic default.

A senior official in Prime Minister Lucas Papademos’ office said an announcement would be issued shortly. Local media reported that Papademos reached an agreement with foreign lenders early Thursday after coming to a compromise with leaders of his coalition government over proposed cutbacks to state and private pensions.

The accord follows days of negotiations over demands by European Union and International Monetary Fund officials for more spending cuts by Greece to bring down its public debt and deficit levels. The European Union and the International Monetary Fund insist that the cuts are necessary for Athens to stay in compliance with terms of its 2010 bailout and for the country to qualify for a second rescue package, which it needs to avoid going bankrupt within weeks.

But the talks hit a major snag Wednesday over proposals to slash $800 million from pensions, with the strongest objections coming from the leader of the conservative New Democracy party, Antonis Samaras, who argued that such cuts would only deepen Greece’s already-painful recession.

The official in the prime minister's office, who spoke on condition of anonymity, said that Papademos, Samaras and other party leaders reached a compromise under which half of the $800 million would be taken from pensions and the remaining half from other sources, such as Greece's defense budget.

The agreement paves the way for a meeting of EU finance ministers in Brussels later Thursday to sign off on a new $170-billion bailout package for Greece to avert a devastating default with potentially global economic consequences. Athens needs the money to pay off bonds due to be redeemed in mid-March.


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-- Anthee Carassava

Photo: The flags of Greece, right, and the European Union, planted on the roof of the Greek Finance Ministry in Athens, fluttered Thursday with the Parthenon in the background. Credit: Dimitri Messinis / Associated Press