Greek leaders face crunch talks as unions strike (Reuters)

ATHENS (Reuters) ? Greek party leaders face crunch talks on Tuesday to secure a new international bailout and avoid a chaotic debt default, caught between EU demands that they accept painful reforms now and a national strike against more austerity.

Prime Minister Lucas Papademos negotiated through most of the night with Greece's European Union and IMF lenders, ending at 4 a.m. (10 p.m. ET) when the 24-hour strike was about to begin, closing ports and tourist sites and disrupting public transport.

Papademos, a technocrat parachuted in to lead the Greek government late last year, must persuade leaders of the three parties in his coalition government to accept the EU/IMF conditions for the 130-billion-euro ($170-billion) rescue.

"We must find a solution today," said one government official before the leaders' talks, which will start later in the day.

With Greece's future in the euro zone in question, German Chancellor Angela Merkel said time was of the essence and there are mounting signs that euro zone officials have lost patience.

They say the full package must be agreed with Greece and approved by the euro zone, European Central Bank and International Monetary Fund before February 15.

This is to allow time for complex legal procedures involved in a bond swap deal - under which the value of private investors' holdings of Greek debt will be cut radically in value - so Athens can get rescue funds before March 20 when it has to meet heavy debt repayments or suffer a messy default.

Merkel told Athens on Monday to make up its mind fast if it would accept the deal, and its conditions of reforms to make the Greek economy more competitive that are certain to lead to big cuts in living standards.

Finance Minister Evangelos Venizelos said talks with the "troika" of lenders - the European Commission, ECB and IMF - were not going well. "Unfortunately the negotiations are so tough that as soon as one chapter closes, another opens," he said after meeting troika officials on Monday night.

But a source close to the talks said that despite the complexity of the talks, especially on very unpopular labour reforms, Greece and its lenders were making progress.

"We are not as far from each other as we were before," the official said, adding that the two parties were working to finalize the outline of the "memorandum of understanding," or policy program Greece needs to agree to in order to get the bailout.

TOURISTS LOCKED OUT

Early on Tuesday, the strike called by the private and public sector unions GSEE and ADEDY began to bite, bringing the country's main port to a standstill.

"No ships departed from Piraeus port this morning, as a result of the seamen's strike," said a coast guard official.

In central Athens, tourists were locked out of the Acropolis and public transport was disrupted during the morning rush hour. State hospitals ran on a skeleton staff and teachers, bank employees and telecoms workers were due to join the action.

Strikers began gathering on Syntagma Square in central Athens, chanting: "No to mediaeval labor conditions, don't bow your heads, show resistance!"

With elections likely in April, the party political leaders - who Europe insists must all sign up to the austerity program - face an obvious incentive not to heap more misery on their voters. But if they do not, an unruly default looms.

Riot police took up positions in front of parliament, which stands above the square, as a number of such protests have turned violent during Greece's almost three-year economic crisis.

Police said about 7,000 people were attending a separate Communist-organized rally in another Athens square.

Greek party leaders face a general election possibly as early as April and have been reluctant to accept yet more austerity to be piled on top of a series of pay cuts, tax rises and job losses imposed since Greece's first bailout in 2010.

After weeks of argument a number major issues have yet to be sorted out at Tuesday's talks.

Greece has yet to identify spending cut measures worth 600 million euros this year, out of a total austerity package of about 3.3 billion euros, a government official said.

The troika was also demanding that private firms' labor costs be cut by about a fifth. This would be done by a combination of reducing the minimum wage by as much as 20 percent - a move that would drag the entire wage scale lower - by cutting holiday bonuses or by scrapping some industry-wide wage bargaining agreements.

Private sector workers currently receive holiday bonuses at Christmas, Easter and in the summer amounting to two months' pay in total, although such benefits have already been cut for public workers.

The troika also wanted top-up, supplementary pensions to be cut by about 15 percent on average to make the pension system financially viable, the official said.

Jean-Claude Juncker, who chairs the group of euro zone finance ministers, backed a plan put forward by Merkel and French President Nicolas Sarkozy to set up a special escrow account into which Greece would make future interest payments as a means of guaranteeing that creditors were consistently paid.

However, Juncker denied that the euro was in danger because of the debt crisis. "The euro will outlive us all," he told German Inforadio on Tuesday.

Greeks watched the political drama with the same exasperation they have shown throughout the crisis, mixed with fear of the consequences of leaving the euro.

"We are lost either way but political leaders have to agree," said Kosmas Georgiou, a 31-year old company inspector. "Going back to the drachma is not an option, it's disaster."

"They are delaying this just to look like heroes."

Papademos said after five hours of talks on Sunday that leaders of the conservative, socialist and far-right parties in his coalition had agreed cuts and other reforms worth 1.5 percent of gross domestic product this year.

However, where these cuts will fall has yet to be thrashed out, and every time a method is proposed, troika officials have to calculate whether this would achieve the savings they demand.

($1 = 0.7646 euros)

(Additional reporting by Karolina Tagaris, Tatiana Fragou, Ingrid Melander, Harry Papachristou and Lila Chotzoglou in Athens, and Gareth Jones in Berlin; Writing by Deepa Babington and David Stamp; Editing by Elizabeth Piper/Mike Peacock)

Source: http://us.rd.yahoo.com/dailynews/rss/business/*http%3A//news.yahoo.com/s/nm/20120207/bs_nm/us_greece

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