Finance minister reportedly lashed out at mission chiefs from EU, ECB and IMF as pressure builds over next repayments
Almost three years after Greece narrowly avoided bankruptcy with its first bailout from the EU and IMF, the country’s relations with its international creditors have taken an unexpected turn for the worst.
The Greek prime minister Antonis Samaras was forced to step in on Sunday after stalled negotiations became bogged down in acrimony when visiting inspectors resumed talks last week.
Indicative of the tensions, Athens’s normally mild-mannered finance minister, Yiannis Stournaras, reportedly lashed out at mission chiefs from the EU, ECB and IMF during a heated exchange in his office on Thursday, telling them they could “take the keys” to the economy ministry if they continued to demand more austerity from a nation experiencing a sixth straight year of recession.
Emerging from the building, the economics professor uncharacteristically labelled the talks as “very difficult” and gave a taste of his own frustration. “The negotiations for the next loan tranches are still very difficult. I can assure you that things are not simple at all,” he said.
After troika representatives abruptly cancelled a meeting with Stournaras late on Saturday, Samaras tried to smooth over the cracks. At stake are two slices of aid worth €8.8bn (£7.5bn) that have been put on hold because of the slow pace of structural reforms.
The first instalment, of €2.8bn, is contingent on the governing coalition agreeing to sack 25,000 civil servants by the end of the year and 150,000 by 2015. The demand has placed what is being called “intolerable pressure” on Samaras’s already fragile administration, with his two junior leftwing partners openly opposing the measure at a time when unemployment is nearing a record 30%.
Highlighting the discord, the administrative reform minister, Antonis Manitakis, in charge of streamlining the bloated public sector and aligned with the small Democratic Left party, threatened to resign – a move that would dramatically undermine the government’s unity.
Other sticking points, according to well-placed sources, include the recapitalisation of Greek banks – and a possible merger between the National Bank of Greece and Eurobank – and a highly contentious property tax levied through electricity bills the conservative-led coalition pledged to scrap when it assumed power last June.
Household incomes have fallen by as much as 50% since the debt crisis erupted in Athens more than three years ago. In an attempt to placate lenders and keep a restive population at bay, Samaras and his coalition partners proposed last week that the property levy be substantially reduced by broadening the tax base to include farmland and undeveloped real estate. Creditors, so far, have failed to react.
Greece faces two debt repayments, including €3.6bn in maturing treasury bills, this month and next. “Not reaching an agreement is not an option,” said Pandelis Kapsis, a prominent political commentator and former government spokesman. “There may be a delay [in disbursement of rescue funds] but there is absolutely no way we can move ahead without an agreement,” he told the Guardian.
Greece is likely to suffer from the turmoil in Cyprus, whose economy is expected to contract sharply following its own bailout agreement. But last week Samaras spoke for the first time of an economic recovery amid signs that fiscal consolidation was finally beginning to pay off.
“Even those who until recently had their doubts are today convinced that we can make it,” he told an audience in Athens, insisting that with private sector hirings outpacing firings in March the country was at long last breaking the vicious cycle of recession.
The investment bank Morgan Stanley also predicted that Greece would achieve a primary surplus by the end of the year, saying it was now optimistic about the country.
Pedro Passos Coelho chooses not to raise taxes again in order to meet stringent targets set by international lenders
Portugal’s prime minister has announced plans for further cuts to health and education spending rather than raising taxes again, in order to meet tough targets set by international lenders after the constitutional court threw out budget measures on Friday.
“I shall instruct ministries to implement necessary reductions in functional spending to offset what the court ruling prohibited. It will certainly be a very difficult process,” Pedro Passos Coelho said in a live broadcast on Sunday evening.. He added that while he respected the court, its ruling would hamper government plans to take back control of its own finances from international lenders next year.
The speech followed an emergency cabinet session on Saturday and a meeting between Passos Coelho and President Aníbal Cavaco Silva, who has the power to dissolve parliament but urged the government to complete a four-year mandate it won at the polls in June 2011.
On Friday the court found that proposed cuts in holiday bonuses for civil servants and pensioners were unconstitutional, as were reductions in sick pay and unemployment benefit, all of which would have trimmed €1.3bn from budget spending for this year, according to media estimates. The court, however, upheld other planned measures such as tax hikes.
Passos Coelho’s conservative Social Democrats took power after his Socialist predecessor asked a “troika” of lenders for a bailout in March 2011, before resigning. Since then, the government has imposed stringent and unpopular spending cuts totalling €13bn – about 8% of Portugal’s economic output – which have led to widespread protests in common with other eurozone countries suffering from a persistent economic slump.
The government failed to meet its budget deficit targets last year set by the European Union, the International Monetary Fund and the European Central Bank, and in order to fulfil the terms of its €78bn bailout Lisbon has pledged to trim a budget shortfall of 6.4% of gross domestic product in 2012 to 5.5% this year.
Passos Coelho survived his fourth vote of no confidence last Wednesday but faced renewed calls to resign over the weekend. Opposition Socialist leader António José Seguro accused the government of breaking campaign promises and said dole queues of almost a million people showed austerity had merely locked the country into a recessionary spiral, which might yet lead to a second bailout. Portugal’s economy shrank by 3.2% last year.
“The country needs a different exit strategy from the crisis, one that prioritises economic growth,” Seguro told state television. “The country is living in a social tragedy. This needs to change, and that change entails substituting the government.”
In crisis-hit neighbouring Spain, meanwhile, the CSI-F union for civil servants said the government in Madrid should “take note” of the Portuguese court’s decision and reimburse workers with a Christmas bonus axed last December in cuts which likewise aim to trim a yawning budget gap.