Greece under pressure to push through reforms
Officials working for Greece’s international lenders are expected to return to the debt-stricken country early next week as time runs out for them to make a decision on their next loan instalment.
George Papandreou, Greece’s prime minister, called a meeting of his cabinet yesterday (21 September) to discuss speeding up austerity measures, a move considered essential if the €8 billion loan tranche is to be approved by mid-October, when Greek authorities need funds to pay pensions and salaries.
The European Commission said on Tuesday (20 September) that its talks with the European Central Bank (ECB), the International Monetary Fund (IMF) and Evangelos Venizelos, Greece’s finance minister, had made “good progress” on the issue. The troika of EU and IMF officials will return for their quarterly review of Greece’s adjustment programme. They left abruptly on 3 September after discovering gaps in the austerity plan.
Finance ministers of eurozone member states hope to wrap up a decision on Greece’s next loan instalment when they meet in Luxembourg on 3 October, having postponed their verdict when they met in Wroclaw, Poland, last week (16 September).
Sources close to the discussions suggest that Greece will receive the emergency funds next month, even if this serves merely to prolong the time until it defaults. Before any such outcome, officials want to boost the eurozone’s bail-out fund, the European Financial Stability Facility (EFSF), and to strengthen banks that have exposure to Greek debt.
As European Voice went to press yesterday, Papandreou was expected to satisfy international lenders by announcing further and faster job losses in the public sector, as well as additional spending cuts and tax hikes. The government has already announced that it will cut the number of civil servants by 150,000 by 2015.
Discussions will also continue at the IMF’s annual meeting in Washington, DC this week (23-24 September), which will be attended by Venizelos and Olli Rehn, the European commissioner for economic and monetary affairs.
Banks at risk
The IMF announced yesterday that the debt crisis had increased the risk exposure of banks in the EU by €300bn. The prospect of recapitalising more banks than just the nine that failed July’s stress tests was raised by finance ministers in Wroclaw, but no firm decision was taken (see Page 19).
Leaders of eurozone member states are desperate to prevent the sovereign-debt crisis reaching Italy, the area’s third-largest economy. But in a sign that their efforts may be proving futile, Standard and Poor’s, a credit-rating agency, downgraded Italy’s sovereign debt on Tuesday, saying that weak government was restricting the country’s “ability to respond decisively”.
Delays to the implementation of the agreement to expand and improve the flexibility of the EFSF are providing a further obstacle that finance ministers hope will be overcome before they next meet.
So far only five member states – Belgium, France, Italy, Luxembourg and Spain – have approved the deal reached at a summit of eurozone leaders on 21 July. It needs unanimous agreement by all 17. Slovenia is the latest country in which doubts have been raised over the likelihood of its parliament voting in favour, after the government collapsed on Tuesday.
The Commission and finance ministers stated last week that implementation had to be finalised by “the beginning of October”, but that looks increasingly unlikely.