Eurozone crisis live: IMF chief economist sees years of turmoil ahead
2012-10-04 09:21:19
Over in Greece, marathon negotiations are now underway as officials work feverishly to bridge differences over the bumper €13.5bn package of spending cuts international creditors are demanding in return for further rescue loans.
Two days after attempts at sealing the austerity package ended in deadlock — with lenders flatly rejecting some €3bn in cuts proposed by Greece’s ruling coalition — both sides are back busily pouring over balance sheets.
In the wake of what were widely described as “difficult” talks at the labour ministry on Tuesday, envoys representing the country’s “troika” of creditors at the EU, ECB and IMF have today moved their focus to the ministry of Development, the government’s most powerful portfolio overseeing energy, transport, infrastructure works and investment.
Kostis Hadzidakis, the development minister, is expected to spend “a good chunk” of his day with the troika following renewed pressure that the crisis-hit country not only make controversial cuts but forge ahead with structural reforms that have fallen by the wayside because of political paralysis spawned by double elections earlier this year.
The reforms, which come under Hadzidakis’ remit, range from opening up “closed-shop” professors – a long-standing demand that Greece was meant to have applied more than a year ago – deregulating the goods, services and energy markets, merging health insurance providers and setting up a new body to oversee state procurements. “It’s all part of the troika suddenly raising the bar,” said one official. “They’ve decided, it seems, to put everything on the table.”
Analysts say lenders appear to be have taken a “shock and awe” approach to the talks, insisting on reforms as well as cuts before approving the next tranche of aid the Greek economy so desperately needs to keep afloat. “There is a feeling that everything should be put on the table and tackled now that the government is relatively fresh,” said one official. “But a lot of the demands are bordering on the absurd.”
Greek government officials fear that if pushed too far the demands could be counter-productive. The troika, which also wants to see more civil servants fired, is determined to further slash pensions, pay packets and benefits if the conservative-led alliance cannot come up with convincing evidence that up to €1.5bn can be shaved from operational costs of ministries overseeing health, defense and local authorities. “They are insisting on the minimum wage and pensions being reduced, totally ignoring the climate we live in here,” another insider told me.
Greek media reports this morning said the envoys wanted the government to pile on a further €2bn in spending cuts to next year’s budget “pushing austerity to the limits”
“In total Greek citizens will be asked to endure almost €10bn of the entire €13.5bn [package of cuts] in one year,” Ta Nea wrote. “This is moving in exactly the opposite direction to the extension the government is aiming for in order to lessen the impact of the austerity.” Regular readers will recall that prime minister Antonis Samaras has said he will raise the issue of extracting a two-year extension of the country’s fiscal and structural reform program at the EU summit on October 18.
But despite the evident tensions, Athens’ governing alliance is keen to play down the friction. Although there now appears to be little hope that the package will be clinched by the next euro group meeting on October 8, the Greek Finance minister Yiannis Stournaras says he still hopes the cuts can be agreed by the EU summit. “There is no negotiation on a political level,” he said downplaying reports that exasperated by the troika’s tactics Samaras was now focusing solely on resolving disagreement over the package with his EU counterparts. “Negotiations are only happening with the troika,” he said.