On the brink of default

Prime Minister Papademos has said Greece may default on its debts in a matter of weeks unless trade unions accept further salary cuts.

The PM said more cuts are needed to avoid exiting the eurozone, preparing the way for even greater austerity measures to be imposed. European Commission, International Monetary Fund and European Central Bank inspectors arrive in Athens on January 15 to assess Greece's progress in cutting its deficit. The 'troika' will decide whether Greece has done enough to continue to receive bailout funds.

 "Without an agreement with the troika and further funding, in March, Greece faces an immediate risk of an uncontrolled default," said Mr Papademos during a meeting this week with union leaders and employers' federations.

"If we want to secure our most significant achievements - participation in the euro and avoidance of a massive, vertical income devaluation that a disorderly bankruptcy and exit from the euro would lead to... then we must accept short-term income reduction. The prime minister added: "We cannot expect other EU states and international organisations to continue to fund a country that does not adapt to reality and does not deal with its problems. Our actions and decisions in the coming weeks will decide everything."

Analysts believe the risks of withdrawing the bailout funding are too great for the troika to countenance, with Greece acting as a firewall to stem contagion in the eurozone. But even with the next tranche of bailout funds being made available, Greece risks a hard default unless a deal is agreed on private sector involvement. Greece owes much of its debt to private sector investors and the majority of these loans must be refinanced by March 12. Papademos' coalition government is negotiating with the troika on a second bailout of 130bn euros ($164bn), which was agreed in principle in October, provided the government took steps to further cut its deficit and restructure its economy.

 In response to the Greek PM's warning, Yannis Panagopoulos, head of the private-sector union GSEE said the union was ready to fight further cuts to its members' salaries. "On the minimum wage of the poor worker, we are not willing to make any step back," said Mr Panagopoulos, who also declared that his union would not discuss cuts to the minimum wage or the 13th and 14th month salary bonus. In Greece, workers are paid additional months' salaries as part of their annual pay package.