Eurogroup Drops Bailout Talks as Greeks Quarrel

(Reuters) -- Euro zone finance ministers dropped plans on Tuesday for a special face-to-face meeting on Greece's new international bailout, as the cabinet in Athens argued up to the last minute on plugging a 325 million euro ($427 million) gap in its austerity plan.

Ministers in the Eurogroup had been expected to gather in Brussels on Wednesday for a meeting which, if all had gone to plan, would have approved the 130 billion euro rescue and save Greece from a messy bankruptcy next month.

However, with the European Union's patience with Greece close to breaking point, Eurogroup Chairman Jean-Claude Juncker said the ministers would hold only a telephone conference call before a regular meeting already scheduled for February 20.

Juncker said he was still awaiting written undertakings from Greek party leaders on pushing through with the austerity package of pay, pension and job cuts - which parliament passed on Monday as rioters torched dozens of buildings in central Athens.

I did not yet receive the required political assurances from the leaders of the Greek coalition parties on the implementation of the program, he said in a statement.

Juncker also said the funding hole required more talks with the troika of Greece's EU and IMF lenders.

It has appeared that further technical work between Greece and the troika is needed in a number of areas, including the closure of the fiscal gap of 325 million euros in 2012 and the debt sustainability analysis, he added.

Critics say the drastic belt-tightening is only deepening Greece's recession, now in its fifth year. With an election expected in April, the EU wants any politician who might take power afterwards to promise to stick with the program.

The frontrunner to become prime minister, conservative New Democracy leader Antonis Samaras, indicated during Sunday's parliamentary debate that he would try to renegotiate the terms of the bailout, further sowing doubt in the minds of European leaders who say they are tired of broken promises.

NOTHING CAN BE REVERSED

However, a senior New Democracy official, who declined to be named, said the fact that the party had backed the package in parliament proved its commitment.

There is no greater commitment than our vote regarding the implementation of the measures, he told Reuters.

None of the measures we voted for can be reversed. But we will discuss with our partners measures that don't bear fruit, in order to meet our targets faster, he said. The only thing we've said is that growth should be our priority.

The cabinet of Prime Minister Lucas Papademos met in Athens to fill the 325 million euro hole in its overall package of 3.3 billion euros in extra budget cuts this year which it must spell out in detail to get the new rescue from the EU and IMF.

Greek politicians have sailed past a series of deadlines in committing themselves to the budget cuts which provoked the most serious violence in Athens in years. Every time they appear finally to have settled everything, new problems or disputes surface, angering the EU.

On Tuesday, the cabinet was considering further cuts to defense spending and public sector salaries, government sources said.

The EU and International Monetary Fund want Greece to account for every cent of budget cuts before they approve the rescue, which includes a bond swap cutting the real value of private-sector investors' bond holdings by some 70 percent.

Two government sources, who declined to be named, said the cabinet was considering trimming 125 million euros from the defense budget, already cut by 300 million in the austerity bill adopted by Sunday. A further 200 million would come by bringing forward public sector salary cuts.

That is what is being discussed but there is no final decision yet, a government official told Reuters. The sources said ministers were also looking at cutting funding for local municipalities.

Athens needs the funds to avoid a disorderly default when 14.5 billion euros in debt repayments fall due on March 20.

But the punishing austerity measures are fuelling social turmoil in Greece, where unemployment hit a high of 20.9 percent in November and half of young Greeks are jobless.

DIRE DATA

The country posted yet more dire economic figures on Tuesday, with flash estimates showing GDP shrank 7 percent in the fourth quarter of 2011 after a 5 percent contraction in Q3.

Earlier, there had been some signs of encouragement.

Austrian Finance Minister Maria Fekter said on Tuesday she was confident that - as far as I know the details - Greece will get more help.

The European Central Bank also said it could use profits from Greek bonds to help restructure the country's debt.

They could use it to contribute to the sustainability of Greek debt, ECB Executive Board member Benoit Coeure said in an interview with French daily Liberation.

Greece managed a successful T-bill auction on Tuesday, selling 1.3 billion euros of 3-month paper with the yield easing by 3 basis points to 4.61 percent compared with the previous auction in January.

But even as all sides pushed to seal the deal, there was a growing sense that even the latest bailout, Greece's second since 2010, might only delay the inevitable - bankruptcy and exit from the single currency.

It might be something which would allow Greece also to get a new start ... to create an economy that can create jobs, Luxembourg Finance Minister Luc Frieden said on Monday in Washington.

Frieden said it was not the preferred scenario, but the impact on the euro zone would be less important than a year ago.

Asked if the euro zone could survive Greek bankruptcy, German Finance Minister Wolfgang Schaeuble told ZDF public broadcaster on Monday: We are better prepared than we were two years ago.

Other European countries have become increasingly concerned about the impact on their economies from the debt crisis.

U.S. rating agency Moody's downgraded the ratings of six European countries late on Monday and put Britain, France and Austria on negative outlook, citing growing risks from Europe's debt crisis and worries about its ability to make needed reforms.

Uncertainty about the resources that will be devoted to tackling the crisis, and Europe's increasingly weak macroeconomic prospects were other factors behind its action, it said.

(Additional reporting by Renee Maltezou Writing by David Stamp; Editing by Myra MacDonald)