Greek deal prospects rise, euro ministers to meet

Wed Feb 8, 2012 4:53pm EST
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By Lefteris Papadimas and John O'Donnell

ATHENS/BRUSSELS (Reuters) - Prospects for a deal on a second international bailout for Greece brightened on Wednesday when euro zone finance ministers were summoned to talks in Brussels while Greek political leaders met to approve a tough new reform and austerity program.

Eurogroup chairman Jean-Claude Juncker invited ministers from the 17-nation single currency area to meet on Thursday evening and the International Monetary Fund said managing director Christine Lagarde would also attend.

They are expected to examine a complex package involving a 130 billion euro EU/IMF rescue and a bond swap with private creditors, which hinges on Athens accepting conditions that require big cuts in many Greeks' living standards.

Greeks face a dreadful year of recession, a government source said. Athens now forecast the economy will shrink between four and five percent in 2012, the source said, adding to a relentless dive in economic output for the last four years which has sent unemployment soaring.

The figure, contained in a draft letter to Lagarde, is far worse than the 2.8 percent fall in gross domestic product forecast when the 2012 budget went to parliament in November, highlighting the conundrum that more austerity will damage the economy further and drive Greece's massive debts yet higher.

Juncker called the Eurogroup meeting even though leaders of the three Greek coalition parties were still discussing with Prime Minister Lucas Papademos the terms of a rescue package to avoid a chaotic default in March that would send tremors around the euro zone and possibly further afield.

Two sources close to the Athens talks said the government would promise spending cuts and tax rises totaling 13 billion euros from 2012 to 2015, almost double the seven billion it originally pledged.

The bailout package also pledges a 22 percent cut to the minimum wage level, a party official said.   Continued...

<p>Anti-austerity protesters carry a police shield during scuffles in front of the parliament in Athens February 7, 2012. REUTERS/Yannis Behrakis</p>