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FACTDROP: Euro Zone Presses Greece on Cutbacks


Euro Zone Presses Greece on Cutbacks

Greece's Finance Minister Evangelos Venizelos, right, and Greek central bank chief George Provopoulos at the Economic and Financial Affairs Council in Wroclaw, Poland, over the weekend.

Πηγή: WSJ
SEPTEMBER 18, 2011

ATHENS—Greece's government was meeting over the weekend after receiving fresh warnings from its euro-zone partners that future aid will be withheld unless it can produce conclusive steps to bring its unruly budget deficit into line.

Greece's Finance Minister Evangelos Venizelos, right, and Greek central bank chief George Provopoulos at the Economic and Financial Affairs Council in Wroclaw, Poland, over the weekend.

Prime Minister George Papandreou aborted a planned trip to New York and Washington this week to preside over emergency meetings in Athens to identify new savings that will convince other euro-zone governments that targets can be met.

Senior Greek government officials say these new measures could include massive public-sector job cuts, steps that some government officials fear could trigger a new outburst of public protest and possibly new elections.

Pressure has been turned up on Greece after talks with visiting international inspectors were abruptly suspended earlier this month after it appeared the country would overshoot its budget deficit for this year. And without fresh aid, Greece will run out of money by mid-October.

At the weekend meeting of European finance ministers in Wroclaw, Poland that concluded Saturday, finance officials from other members of the 17-country euro zone warned that Greece may not receive the next €8 billion ($11.04 billion) tranche under its bailout agreement in October, according to senior Greek officials familiar with the matter.

With financial markets worrying of a possible Greek default, inspectors from the European Union, the European Central Bank and the International Monetary Fund have postponed a decision on whether to extend the next payment until next month.

German Finance Minister Wolfgang Schäuble revealed a harder line when saying in a German newspaper interview published Sunday that the tranche will not be paid unless Greece sticks to planned deficit reductions.

"This is why the Greeks must produce the numbers that show things are according to plan," Schäuble told the mass-circulation Bild am Sonntag. "The Greeks have to know whether they can shoulder the burden."

Recently the Greek government set a new property tax to close the budget gap. But measuring the impact of the tax will take time. Greece may now have to resort to immediate layoffs in the public sector, new indirect taxes and the closure of dozens of state-linked organizations.

"The euro zone has serious doubts that the property tax will be implemented or yield the desired results. So they have asked for measures with immediate effect," said a senior Greek government official with direct knowledge of the talks.

The next aid tranche was originally expected to be paid out in September, but will now be delayed until October and pending further Greek government measures.

"There is a climate of serious mistrust against Greece," said a second senior Greek government official. "The [next] tranche is up in the air and the situation is very difficult. We are running out of money."

In May 2010, Greece narrowly avoided default with the help of a €110 billion bailout from its euro-zone partners and the IMF. Under the terms of that loan, Greece receives quarterly disbursements of aid to cover its financing needs every three months.

A second bailout agreement worth €109 billion is now being debated in the parliaments of euro zone countries. That package also could hinge on Greece passing muster in coming talks with the EU, ECB and IMF—the so-called "troika." Greek Finance Minister Evangelos Venizelos is due to hold official talks with the troika of international inspectors via a teleconference call Monday. The troika will return "when Greece has completed the necessary work," said a spokesman for the European Commissioner for Economic and Monetary Affairs Olli Rehn.

Greece might have to consider retroactively—and with immediate effect—rescinding all public-sector hiring that took place in 2010 and 2011, said Greek officials familiar with the discussions.

That could affect some 25,000 public-sector workers—and possibly more, said one official. Greece has also been asked to consider raising taxes on tobacco, alcohol and luxury goods, while there is also pressure for Athens to step up plans to close or merge dozens of public-sector bodies.

As yet, no decisions on new measures have been taken, say government officials, adding that Greece is trying to negotiate with its euro zone partners about specifics.

The Greek government argues that some of the hiring done last year and in 2011, was previously agreed to with the country's creditors and that only about 10,000 public-sector workers—those hired above the agreed to limits—should be let go.

"New measures have not been decided, but consultations are ongoing," a Greek official said. "Many scenarios are being examined beyond layoffs."

The growing pressure on Greek households and businesses from increasing austerity measures has lifted political tensions in Athens, with another round of cutbacks likely to shift support away from the government. Leading opposition parties are pushing for elections that could disrupt the reform process.

"The only solution to today's deadlock is elections," Antonis Samaras, head of the conservative opposition New Democracy party said in a widely-reported speech in Thessaloniki.

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