Greece is once again on the ropes, analysts said on Monday, after its embattled government ordered further controversial spending cuts and tax hikes to head off the disastrous prospect of a loan freeze from its irate EU-IMF creditors.
As senior European politicians broached the possibility of an “orderly” default for debt-stricken Athens in spite of a huge bailout loan extended only last year, the Greek finance ministry announced new plans to slice anextra two billion euros ($A2.62 billion) off the deficit.
The latest revision comes barely three months after a previous fiscal blueprint, designed to last until 2015, was agreed with the EU, IMF and ECB.
“This looks like patchwork,” noted Angelos Tsakanikas, head of studies at the Institute for Economic and Industrial Research (IOVE).
Only days earlier, Finance Minister Evangelos Venizelos had been confidently arguing that a recession deeper than what Greece’s ‘troika’ of creditors had anticipated would “automatically” affect previously agreed fiscal targets.
The Greek economy is now expected to contract by at least five per cent of output against the previous forecast 3.5 per cent. But the government found the tide of European public opinion rapidly turning against it, just as the continent’s various parliaments began meeting to approve a new 159-billion-euro Greek rescue package set up in July.
The 110-billion-euro bailout last year proved insufficient as Athens was unable to generate growth and return to money markets on its own.
On Monday, deputy finance minister Filippos Sachinides said the government had enough cash to make it through October.
“We will try to cover state liquidity for as long as possible … we definitely have this option for October,” he told Mega television.
Greece’s creditors have been angered as reform laws voted months ago have yet to be put into practice, and a crash privatisation program that is a condition of the new rescue package has made little tangible progress.
“They spent more time and energy looking at how not to apply the recovery plan than on actually doing the work,” Tsakanikas said of the ruling Greek Socialist party.
Many Greeks fear that the state sell-off will be too cheap, and complain that some 20,000 state employees will be laid off and many others will have their wages cut amid unemployment that reached 16 per cent in June.
A ‘troika’ audit to determine whether Greece had made enough progress to merit a scheduled eight-million-euro loan instalment was suspended in early September, and for the first time Athens was explicitly warned that the funds could be cut off.
“The message was that the pleasantries are over,” said political analyst Thomas Gerakis. “But the true question is whether the government is capable of carrying out the task at hand,” he told AFP, warning of a new flare-up of social anger.
On Saturday, some 25,000 people demonstrated in the main northern city of Thessaloniki where Prime Minister George Papandreou gave a speech on the government’s economic policy. A new property tax is expected to cost home-owners hundreds of euros on top of existing wage cuts and sales tax hikes.
The tax is to be collected through electricity bills, but the main power operator’s union said it would resist the measure if it meant service cuts to poor households.
On Monday, Finance Minister Venizelos and his predecessor, George Papaconstantinou, were booed by finance ministry staff as they arrived for talks with European Commissioner for Regional Policy Johannes Hahn.
The finance ministry on Monday said the state budget deficit had jumped to 18.1 billion euros as the debt-mired country had to pay more to service its loans and increased social outlays due to the recession. The ministry had intended to collect $US54 billion in revenue this year but is more than $US2 billion off-target, Venizelos said.
Financial markets fled to safety at signs that Germany was losing patience with Greece. The euro sank to a 10-year low point against the yen and German bond yields fell to a record low level as investors sought safe-haven assets.
