Greece faces hour of decision on austerity and rescue

(ATHENS) - Greece kept the eurozone and financial markets on edge on Wednesday in the final hours of talks on radical extra budget cuts and a debt deal to avert default.

Agreement by the coalition government on new measures demanded by the EU and IMF, and on a debt-write down by banks would open the way for a second rescue and would close a key chapter in the eurozone crisis.

The general feeling was that a landmark overall debt-rescue agreement was likely at any time.

In Luxembourg, the head of the Eurogroup finance ministers Jean-Claude Juncker said that the ministers may hold talks on the package on Thursday depending on the outcome of negotiations in Athens.

"Tonight at the latest I will decide if a Eurogroup meeting will take place tomorrow evening or not," Juncker told a news conference.

A final framework hammered out with the European Union and International Monetary Fund is now in the hands of partners in the governing coalition, a conservative party source said in Athens.

Heads of the socialist, conservative and far-right parties are expected to approve the 50-page text later in the day, the New Democracy (ND) source said.

An agreement, just the day after a general strike against the new round of budget measures, would clear the way for a second rescue worth 130 billion euros ($173 billion) from the EU, European Central Bank (ECB) and IMF.

The new funding is vital if Greece is to avert a debt default on March 20, when it must repay 14.5 billion euros to bond holders.

On the eurozone bond market where tension has eased markedly since the beginning of the year, interest rates were subdued.

"Whether this turns out to be the good news that the market is currently expecting, or another short term rally followed by a painful pull back remains to be seen," analyst Alistair Cotton said in a note.

"But there is reason to remain sceptical given the number of times over the last two years news about a Greek rescue deal moved the market in exactly the same way; euro positive on the rumour, retracement on the fact," he said.

If a deal emerges, it will be presented by Finance Minister Evangelos Venizelos to eurozone finance ministers on Thursday and be tabled in parliament on Friday for approval by Sunday, the semi-state Athens News Agency reported.

The text was drawn up during a night of marathon talks between Prime Minister Lucas Papademos and representatives from the "troika" aimed at setting up a second rescue for Athens following an initial bailout worth 110 billion euros.

The coalition party leaders were given a few hours to study the plan, which was said to include cost-saving measures worth 3.2 billion euros.

The document "presents an outline of new measures" that official creditors have demanded in exchange for more aid for the massively-indebted eurozone member, the ND source said.

An "agreement in principle" is now required from the three coalition parties after weeks of haggling over controversial new austerity measures, it added.

Press leaks have said that the latest measures, reportedly "tweaked up to the last minute," include a cut of 22 percent in the minimum wage and 15-percent cuts in complementary pension programmes, along with a separate 15-percent reduction for public utility pensioners.

Savvas Robolis, a senior labour analyst at leading private-sector union GSEE, said the minimum wage cuts would affect 325,000 people or 17 percent of the workforce.

"The minimum wage will drop to around 500 euros...and this will create a 2.2-billion-euro shortage in health and pension funds," he told Flash Radio.

About 15,000 Greek public sector jobs are thought likely to be axed.

The country is running out of time to agree on new budget action, and to conclude a separate debt write-off with banks and other private creditors worth at least 100 billion euros.

Greece has run up total debt of about 350 billion euros, roughly 160 percent of its gross domestic product, and the IMF has insisted that level be brought down to a maximum of 120 percent of GDP.

On Tuesday, Papademos met Charles Dallara, head of the Institute of International Finance and chief representative in the private debt discussions.

The Wall Street Journal reported on Wednesday that the ECB would participate in a writedown of Greece's debt by agreeing "to exchange the government bonds it purchased in the secondary market last year at a price below face value, provided the debt-restructuring talks have a successful outcome."