Greece must pledge tough reforms for debt swap deal

Greece must make "difficult" decisions in the coming days to clinch a debt swap agreement and a 130 billion euro bailout package needed to avoid an unruly default, the government said on Tuesday. Near-bankrupt Greece is struggling to convince sceptical lenders it can ram through spending cuts and labour reform to help bridge a funding shortfall driven by a worsening economic climate and its previous reform plan having veered off track.
With a long-awaited debt swap deal largely almost secured, Athens' focus is now squarely on the reform front. Failure to persuade lenders it can follow through on its pledges could put both the bond swap and the country's latest bailout at risk. "Without the new (bailout) programme we cannot have the necessary funding and the debt swap cannot be completed," Finance Minister Evangelos Venizelos told reporters.
"In the next few days, our country needs to take difficult decisions and to complete a gigantic effort which rewards the sacrifices, the achievements and the hopes of the Greek people." He reiterated that Athens is "one formal step away" from completing a deal with private bondholders to restructure 200 billion euros of Greek debt, and confirmed that talks on both the swap and the bailout were "converging" and "co-dependent".
A senior Greek banker earlier said a final accord on the bond swap was on hold until Athens can show it is serious about tackling reforms. "The debt swap agreement is ready, but it will not be announced before the end of the week and until the government has made certain commitments on reforms, labour issues and the pension system," said the banker, who declined to be named.
"By delaying the debt swap, European partners are putting pressure on the government and political leaders to make certain commitments." Prime Minister Lucas Papademos on Tuesday confirmed that Athens was aiming for a definitive agreement on the debt swap by the end of this week - roughly the same time it expects to conclude talks with lenders in Athens on its second bailout.
Papademos acknowledged that the main sticking points in talks with the so-called "troika" of foreign lenders - the European Central Bank, the EU and the International Monetary Fund - revolved around spending cuts and labour reform. On top of biting austerity measures already taken that regularly bring droves of angry protesters onto the streets, Greece's lenders have demanded it make extra spending cuts worth 1 percent of GDP - or just above 2 billion euros - this year, including big cuts in defence and health spending.
In a sign of the challenges the government faces in pushing those through, a Greek union official said the country's major unions were gearing up for more anti-austerity protests next month after an early grace period for Papademos's government. Talks with the troika have struggled over further cuts in labour costs in the private sector, which Athens has resisted over fears they could deepen a brutal recession and impose additional hardship on the poor, Greek officials say. The prospect of elections as early as April has further complicated the talks, with political leaders in Papademos's national unity coalition eager to distance themselves from any cuts that herald more pain for ordinary Greeks.