Greek prime minister warns of March default

Prime minister Lucas Papademos Greek prime minister Lucas Papademos (L) made the warning at a meeting with union leaders.

Greek Prime Minister Lucas Papademos has said Greece may default on its debts in March unless unions accept further cuts to salaries.

Mr Papademos said more cuts were needed to avoid exiting the eurozone.

Analysts say the warning is to prepare Greece for more austerity measures.

European Commission, International Monetary Fund and European Central Bank inspectors, known as the troika, arrive to assess Greece's progress in cutting its deficit on 15 January.

They will decide whether to provide further bailout funds to the country.

"Without an agreement with the troika and further funding, Greece in March faces an immediate risk of an uncontrolled default," Mr Papademos said.

However, analysts said the risks of not providing the funding were too great.

"Without a firewall in place to stem contagion from a Greek default to other European banks, it is very unlikely the troika will decide to deny Greece the funds and cut the country loose," Megan Greene at Roubini Global Economics told the BBC.

"However, even if the troika does transfer the next tranche of funds to Greece, the country risks a hard default, unless a deal is agreed on private sector involvement before March."

Start Quote

On the minimum wage of the poor worker, we are not willing to make any step back”

End Quote Yannis Panagopoulos Head of the GSEE union
Second bailout

Greece owes a large part of its debt to private sector investors and the majority of these loans must be refinanced by March 12.

The country is currently negotiating with the troika about a second bailout of 130bn euros ($169.5bn, £108.7bn), which was agreed in principle in October 2011, provided the country takes further steps to cut its deficit and restructure its economy.

"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 a short-term income reduction," said Mr Papademos at a meeting with union leaders and employers' federations.

Start Quote

It is possible to exit this vicious circle, but unambiguous actions are required by all in the next three months”

End Quote Professor Nikos Vettas Athens University of Economics
Union resistance

Union leaders, however, appeared ready to fight further cuts to their members' salaries.

"On the minimum wage of the poor worker, we are not willing to make any step back. We are not discussing [cuts] in the 13th and 14th month salary or the minimum wage," said Yannis Panagopoulos, head of the GSEE private sector union.

In Greece and some other European countries, workers are paid additional months' salaries as part of their annual pay package.

Some Greek economists maintain that the situation can be resolved through concerted efforts.

"It is possible to exit this vicious circle, but unambiguous actions are required by all in the next three months," Nikos Vettas, professor at the Athens University of Economics, told the BBC.

"Private creditors have to agree swiftly on the haircut procedures, the EU partners to deliver the support needed, the citizens to actively support a reform agenda and the politicians to reach the minimum consensus required for such reforms."

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