In a meeting with a senior European Union official Wednesday, Greek prime minister Antonis Samaras voiced serious concerns over new demands by his country’s official sector creditors, according to government sources.
The troika of lenders, comprised of the European Central Bank, the European Union and the International Monetary Fund, is demanding that Greece make an extra €2 billion of savings in 2014, on top of current austerity and reform measures being implemented by the Samaras government. Savings would mean more cuts, more taxes, more privatizations or any combination of the above.
The €2 billion figure emerged after a meeting of euro zone finance ministers earlier this week. Ahead of the meeting, senior ECB official Joerg Asmussen told reporters that Greece had a €5 to 6 billion gap in its finances for 2014.
The discussions between PM Samaras and Thomas Wieser, head of the Eurogroup working group, signalled the start of yet more negotiations between Greece and the troika. The Eurogroup Working Group is a body which liaises between various other strands of the euro zone bureaucracy, involving finance and banking.
According to the Greek government, the troika is refusing to consider proposals that would allay the situation and cover the funding gap, such as delaying the repayment (rollover) of Greek bonds maturing next year and which are held by the European Central Bank and other EU national central banks. Moreover, the question of debt relief for Greece is off the political agenda until – at least – the conclusion of European parliament elections, scheduled for May. Both measures would lessen the pressure on Greece and make its debt load viable, according to Greek finance ministry sources. Should Greece’s debt load become ‘unviable’, the IMF would be obliged by its charter to stop lending to Greece. At the same time, the ECB is constrained by its charter not to directly finance euro zone governments – although, as is evident in the cases of Cyprus, Greece, Ireland and Portugal bailouts, it already has.
On a more pressing front, a €1 billion loan tranche for Greece that was supposed to have been paid out last July is still pending. According to the lenders, this is because Greece has yet to implement a series of measures and reforms to which it already had agreed. These include: cessation of subsidies to state-owned defense industries and the, again, state-owned LARCO mining company; moving public sector employees to a labor reserve ahead of possible layoffs; introducing a new code for lawyers; the payment of the state’s arrears to water utilities which are in the process of being privatized.
The situation is dire: according to the Greek statistics authority, the economy contracted by 6.4 per cent in 2012 and unemployment has reached nearly 28 per cent. After six years of recession, households have lost, on average, more than a third of their income.
The Greek government has literally been making ends meet by issuing short-term debt and delaying payments. Tax revenues have fallen and, despite serious efforts, tax evasion remains rampant.
A senior Greek finance ministry official told the Financial Times newspaper that “social pressures are becoming unsustainable”.
Tens of ruling coalition deputies are railing against Mr. Samaras’s government on issues such as new taxes on farmland, heating fuel subsidies and unemployment benefits.
Deputies of Mr. Samaras’s New Democracy party are especially worried they will suffer the same fate as their PASOK colleagues. New Democracy and PASOK formed a government after the June 2012 elections. PASOK won the 2009 elections with 43.92 per cent of the vote but after implementing a series of unpopular austerity and reform measures, it only managed to get 12.28 per cent of the vote at the last elections. The then Greek government had to impose harsh measures as to qualify for bailout loans when it almost went bankrupt in 2010.
Health minister Adonis Georgiadis, who has been overseeing drastic cuts in public healthcare, during an interview to Skai television went so far as to say that implementing new ‘horizontal’ (i.e. across the board) measures would topple the government.
On the positive side, there is talk of Greece posting a primary surplus for 2013 (a surplus of income compared to expenditure, excluding interest payments on debt). And government bond yields fell this past week to their lowest level since 2012.
Despite the fiery rhetoric coming from both sides, finance minister Yannis Stournaras said that decisions on the financial gap will be taken toward the end of the year by Greece’s creditors.