Greek hopes dashed as EU leaders reject austerity package

Eurozone finance ministers have rejected a reported €3.3bn package of Greek budget cuts, dashing hopes the country will secure more bailout cash and avoid default.

The Greek finance minister has returned to Athens with a fresh set of demands and an urgent deadline, the FT reports.

Greece’s creditors are demanding €325m in further cuts to this year’s budget, parliamentary approval of a sweeping reform package, and a pledge from the country’s political leaders they will maintain their commitment after April elections.

Through the loan package and bond swap, Greece’s lenders are trying to lower the country’s debt-to-GDP ratio to 120 per cent by 2020.  ECB president Mario Draghi said at a news conference yesterday that Greek Prime Minister Lucas Papademos had told him a deal had been reached.

Draghi would not reveal, however, how the ECB's holdings of Greek bonds would be treated.

Sources close to the situation told Reuters the ECB is divided over whether it should sacrifice profits on its Greek bond holdings when private investors are being forced to accept up to 70% haircuts.

Greek officials said the ECB should hand back the profits, raising a potential €12bn.

Meanwhile Yannis Koutsoukos, Greece's deputy Labour Minister, resigned over the proposals, saying the austerity measures would be "painful for working people.”