Feuding politicians put Greece's rescue package in jeopardy

Leaders from across the political spectrum have so far refused to sign off a fresh round of austerity cuts demanded by the so-called "troika" of the European Union, International Monetary Fund and European Central Bank in return for more cash to stave off a catastrophic default.

Prime minister Lucas Papademos took over last November with the backing of socialist party PASOK, the conservative New Democracy and far-right LAOS to steer through the austerity measures ahead of fresh elections, possibly as soon as April.

The country's leaders have reached an outline agreement on cutting Greece's bloated public sector by 1.5% of GDP - around 3 billion - but rows over cuts to Greece's minimum wage raged as the troika's deadline for a public declaration of support for the cuts loomed.

Despite Greece's financially parlous state, politicians are jockeying for position and reluctant to sign up to yet more pain as the nation faces a fifth successive year of recession.

Antonis Samaras' New Democracy -- which is ahead in the polls - is looking for snap elections in April, although PASOK's George Papandreou, who stepped down as prime minister in November, wants to give Papademos more time to push through reforms. Greece's two biggest unions added to the pressure with major protests planned for tomorrow.

Greece's leaders were warned over the weekend that no more cash would be forthcoming without structural reforms, which would leave the beleaguered nation facing a disorderly default on March 20, when a 14.4 billion bond issue falls due.

Citigroup's Juergen Michel said: "These talks are an important step but it doesn't mean all the problems in Greece are solved because the big question is always 'what about implementation?'.

We have seen many, many of these deadlines come and go. The politics are an inherent problem there - nobody wants to be blamed for making unpopular decisions."

The stumbling block comes despite an imminent deal with banks and hedge funds over voluntary losses on their Greek bond, to cut the nation's debt burden to 120% of GDP by 2020.Greece's creditors are said to have agreed to take an 3.6% interest rate on the new debt they receive as part of the deal.

Lloyds Bank Corporate Market's Charlie Diebel said: "The real sticking point is Greek political agreement. Ultimately you just have to hope that clear heads will prevail and they will sign up to avoid a disorderly default, even if they tear up the agreement later after elections. The problem here though is that with all this fudging confidence is ebbing away day by day."

IMF warns of impact on China

China's soaring growth rate could be cut in half this year if Europe's debt crisis worsens significantly, the IMF warned today.

Based on the IMF's "downside" forecast for the global economy, China's growth could drop by as much as four percentage points this year from its current forecast of 8.2%, according to a new report from the organisation's Beijing office.

China, the world's second-biggest economy, has been cutting interest rates to fight inflation for the past 18 months but a worst-case scenario in the eurozone would warrant "significant" fiscal stimulus, the IMF said.

The forecast will send shudders through economists hoping for a soft landing for the Chinese economy and comes after the IMF's warning last month that the world could plunge into another recession if Europe's woes deepen.

"China's growth rate would drop abruptly if the euro area experiences a sharp recession. However, a track record of fiscal discipline has given China ample room to respond to such an external shock," the IMF said.