Greece’s ability to avoid default hangs in the balance as international monitors prepare to assess whether Prime Minister George Papandreou can meet the conditions of rescue loans.
European Union and International Monetary Fund inspectors hold a teleconference today at 7 p.m. Athens time with Finance Minister Evangelos Venizelos, to judge whether the government is eligible for an aid payment due next month and on track for a second rescue package approved by EU leaders July 21.
“We can’t move along without real implementation of fiscal reforms and we are late,” Venizelos said at a conference in Athens today. “We must reach the end of December with a cash balance result that’s within fiscal targets.”
Greece is struggling to prove to its partners it is doing enough to receive a sixth tranche of loans to prevent default. As Papandreou fights investor doubts and domestic protests, European leaders are squabbling over the terms of the July agreement and the prospect that they will be forced to channel more money to keep Greece in the currency union. IMF and EU monitors suspended their review earlier this month after discovering an unexpected hole in the budget.
Venizelos said yesterday some measures in the five-year 78 billion-euro ($107 billion) medium-term budget plan adopted in June may need to be brought forward to meet targets, a week after announcing a property levy to help raise 2 billion euros.
‘Smaller, Smarter State’
The European Commission isn’t demanding more of Greece than was agreed to the international aid program for the country, economics spokesman Amadeu Altafaj told reporters in Brussels. “The only thing that is on the table is full compliance with the agreed targets. No more, no less,” he said, adding that only after today’s conference call will the commission “be in a position to communicate further on the next steps.”
Venizelos said state has to become “smaller and smarter” and the focus on the 2012 budget will be on spending cuts. New taxes can’t be “incessantly” imposed because of the inefficiency of the tax collection system, he said.
Yesterday, German Chancellor Angela Merkel’s party lost a regional election in Berlin, the last of seven state ballots this year that have seen the coalition parties punished amid voter anger over her handling of the debt crisis.
Greece’s 10-year yield rose 163 basis points to 22.82 percent while two-year notes added 513 basis points to 60.0 percent. The notes rose for the first week in two months last week as traders trimmed bets for a pending default after the leaders of Germany and France signaled a commitment to keeping Greece in the euro area. They had climbed above 80 percent for the first time on Sept. 14 amid speculation the country wouldn’t be able to meet its obligations to investors.
Stocks and U.S. futures fell, sending the MSCI All-Country World Index lower for the first time in five days, as the euro weakened amid concern about Greece’s debt. The MSCI All-Country World Index declined 1 percent at 12:11 p.m. in London. The Stoxx Europe 600 Index dropped 1.8 percent and futures on the Standard & Poor’s 500 Index sank 1.5 percent. The euro fell 0.9 percent and the Dollar Index rose for a second day.
Papandreou will convene his Cabinet again after Venizelos’s call today with the EU and IMF monitors. The finance minister will set out plans announced Sept. 6 to accelerate state asset sales and cut spending by placing civil servants in a “reserve” system and shutting down dozens of government agencies.
Greece’s three main aims are to meet targets for 2011 and 2012, create a primary surplus as soon as possible and pursue structural reforms with vigor to shield the country, he said yesterday. The economy will shrink 5.5 percent this year and also contract next year, he said today. The goal is still to achieve a primary surplus of 3 billion euros next year, he said.
Venizelos is blaming a third year of a deepening recession for failing to meet budget targets. The announcements this month including the property levy are a bid to show Greece is serious about addressing its benefactors’ concerns, key to getting the 159 billion-euro package agreed to in July. That would supplement last year’s 110 billion-euro package.
Additional measures are needed to reduce the budget deficit to a sustainable level, Bob Traa, the IMF’s resident representative in Greece, said today. He added that it was “appropriate and important” to underline that the IMF disagreed with the view that the program carried out by the government has been unsuccessful to date. “Impressive fiscal consolidation has happened,” he said.
Greece won’t return to growth until 2013, with economic output declining 2.5 percent next year, Traa said.
Venizelos on Sept. 17 dismissed talk of the country declaring bankruptcy and said Papandreou canceled his planned week-long U.S. visit to be prepared to take quick decisions this week, when Parliament votes on the July 21 package, which also gave Europe’s rescue-fund expanded authority.
Papandreou had planned to meet officials including IMF Managing Director Christine Lagarde and U.S. Treasury Secretary Timothy F. Geithner on his trip to New York and Washington. His first meeting was scheduled for New York yesterday. A separate meeting this month between Lagarde and Venizelos is still planned, a Finance Ministry official said.
Papandreou last week promised a “decisive battle” for budget cuts to persuade European governments and the IMF to release the 8 billion-euro loan installment.
Greece is now looking to the next meeting of euro-area finance ministers, on Oct. 3, for a decision on the release of the installment. The loan would be disbursed by mid-October, enabling the government to pay its bills through the end of the year.
Former IMF head Dominique Strauss-Kahn said that forcing Greece to pay back its debts would unacceptably impoverish the country, and that everyone must be willing to accept losses on Greek debt.
“They can’t pay,” Strauss-Kahn said in interview yesterday with France’s TF1 television. “The efforts of European leaders have been too little, or too late, or often both too little and too late.”
Greece has the cash reserves to cover its needs for October, Deputy Finance Minister Filippos Sachinidis said on Sept. 12.
Cuts in Wages
Higher taxes and cuts in wages and pensions in return for a 110 billion-euro package of loans from the EU and IMF in May 2010 have weighed on Papandreou’s standing with Greeks, with his Pasok party now trailing the opposition in polls.
People with disabilities gathered outside the Finance Ministry in central Athens today to protest plans for the special property tax and government plans to include them in the reserve plan for civil servants. “The measures announced don’t protect the weaker groups in society,” Yiannis Limdaios, a protester, told state-run NET TV.
Nine in 10 Greeks are dissatisfied with the government and opposition’s handling of the crisis, according to a poll of 1,216 Greeks by Public Issue for Kathimerini newspaper on Sept 11.
Opposition New Democracy’s lead over Pasok is now four percentage points, with the poll showing neither party would win an outright majority in parliament. The poll was conducted Sept. 2 to Sept. 7 and the margin of error is 2.9 percentage points.
New Democracy leader Antonis Samaras yesterday repeated a call for elections, promising Greeks he would renegotiate the terms of the financing package if his party wins a majority in parliament.
“The biggest weapon the country has right now is elections and clear solutions,” he said. New Democracy needs “the clear mandate of the people to renegotiate” the agreements.