Greek cabinet backs austerity measures

Greece’s cabinet on Saturday approved a final set of austerity measures sought by the EU and IMF as a condition for a €130 billion rescue package, raising the chances of a deal next week to avert a chaotic default on its debt.

The approval was largely a formality after Athens last week unveiled details of the extra budget and public sector wage cuts worth €325 million to euro zone partners.

Lingering doubts over whether Greece can bring its mountain of debt down to more manageable levels in coming years could still hold up the rescue package.

Some officials in the 17-nation currency union warn chances of a deal at a euro zone meeting on Monday are little higher than 50-50.

“The €325 million worth of measures were approved unanimously,” said one minister, speaking on condition of anonymity, about the cuts, part of a €3.3 billion package of austerity measures that have triggered riots in Athens.

A government official said cabinet had also agreed to launch by March 8 a debt swap for private creditors with the aim of completing it by March 11. The swap is intended to accompany the rescue deal and will mean that creditors take a 70% cut in the real value of their holdings.

After months of often acrimonious negotiations, Greek hopes are rising that Monday’s meeting in Brussels will endorse the rescue which Athens needs to avoid bankruptcy on March 20 when major debt repayments fall due.

“The Greek people have done everything they can and we are determined to make good on our commitments,” Public Order Minister Christos Papoutsis said before the meeting.

In a statement, Prime Minister Lucas Papademos regretted that extra pension cuts could not be avoided, but said the impact was limited because it would only affect the part of the pension above a monthly threshold of €1,300.

“We all agree the immediate support of economic activity is a priority of the government’s economic policy,” he added, while not detailing what growth measures were under consideration.

A survey by pollster MRB for Sunday’s Realnews newspaper showed 72.7% of Greeks want the country to stay in the euro, but only about half believe it will manage to do so.

On Friday, German Chancellor Angela Merkel, Italian Prime Minister Mario Monti and Papademos all voiced optimism about a Greek accord during a three-way conference call, Monti’s office said.

However, Jean-Claude Juncker, who will chair Monday’s meeting of the Eurogroup in Brussels, made clear that urgent work was still needed to get a programme to reduce Greece’s crippling debts back on track.

At stake is a target of lowering the debt from the equivalent of 160% of annual Greek economic output now to a more manageable 120% by 2020.