MercoPress. South Atlantic News Agency

Greece submits austerity budget, but political differences surface in coalition

PM Papademos (R) and Finance Minister Venizelos met the ECB, EU and IMF troika

Greece's new government took a first step on Friday towards meeting terms of an international bailout needed to avoid bankruptcy, submitting a budget bill that foresees no new austerity measures next year as long as reforms are enacted.

The draft predicted the Mediterranean state would face a fifth year of recession but said a plan to convince private creditors to take a 50% loss on bond holdings could cut the fiscal deficit by more than a third.

Economists said years of swingeing tax hikes, public salary and pension cuts and other belt-tightening measures could send the economy deeper into contraction and the draft spending plan's forecasts are probably too optimistic.

The budget draft forecasts the 220-billion-Euro economy to shrink 2.8% in 2012, versus 5.5% this year.

But analysts point to a rift between parties in technocrat Prime Minister Lucas Papademos's unity coalition caused by jockeying for position by the conservative New Democracy party ahead of an election slated for Feb. 19.

Papademos must win pledges from the rival parties that they will do what it takes to meet bailout terms or Greece's lenders will withhold an 8-billion-Euro aid tranche Athens needs to dodge default next month, plus longer-term financing later.

As part of that process, representatives from the “troika” of the International Monetary Fund, the European Union and European Central Bank met Greek Finance Minister Evangelos Venizelos and Papademos on Friday.

The officials, who made no statement after the talks, will also meet the heads of the three coalition parties on Saturday.

Tensions have risen between coalition partners, the Socialists of fallen Prime Minister George Papandreou and New Democracy, as the latter's leader, Antonis Samaras, has refused to sign the commitment sought by EU and IMF authorities.