March 28, 2024

Some Greeks Fear Government Is Selling Nation

And then comes the mandated deeper round of austerity measures, which will slash the wages of police officers, firefighters and other state workers who are protesting in Athens, and raise the taxes of citizens already inflamed by a recession-plagued economy and soaring joblessness.

After winning a pivotal confidence vote on his new cabinet on Tuesday, Prime Minister George Papandreou now has an even tougher task: to carry out a radical remedy of forced auctions and fiscal austerity for a sickened economy already in a deep slump.

The European Union, the European Central Bank and the International Monetary Fund, known as the “troika,” say that is the only way out for a heavily indebted Greece, while some economists say the program resembles medieval bloodletting — a dose of pain highly unlikely to revive the patient.

Mr. Papandreou’s first task is to persuade his governing Socialist Party to pass a bill that would save or raise about $40 billion by 2015, equivalent to 12 percent of Greece’s gross domestic product, through wage cuts and tax increases, at a time when the economy is shrinking.

To put that in perspective, spending cuts and tax increases of a similar scale in the United States would amount to $1.75 trillion, considerably more sweeping than even the most far-reaching proposals for reducing the American federal budget deficit. And Greece has promised to generate another $72 billion by selling off prime state assets, which many Greeks consider a fire sale of national patrimony.

While the commitment to austerity will allow Greece access to a fresh infusion of international aid, a growing chorus of economists say that the government’s new program will at best delay default and a restructuring of its debt, which is already more than 150 percent of the country’s gross domestic product. Steeper budget cuts and tax increases, they say, are the enemy of economic growth, which Greece desperately needs to make its debt burden lighter.

“You cannot keep on milking the cow without feeding it,” said Konstantinos Mihalos, the president of the Hellenic Chamber of Commerce in Athens.

In fact many economists fear Greece has already entered a “debt trap,” where paying the interest on its mound of debt requires more and more loans. “The Greeks have been told to accept more of the medicine that has already failed to treat the disease,” said Simon Tilford, chief economist at the Center for European Reform in London.

The Greeks have already reduced their deficit by five percentage points of the gross domestic product, “unprecedented cuts in a modern economy,” Mr. Tilford said. “But the cuts have had a much stronger negative impact on the economy than the troika imagined, and fiscal austerity has pushed the economy deep into recession. Debt can only be paid out of income, and that means growth.”

Greece does not have access to many tools to fight recession, like devaluing its currency or cutting interest rates, at least as long as it remains a member of the euro zone. Its monetary policy is controlled by the European Central Bank.

Some independent economists accept that Greece has no choice but to try a fresh round of cuts. Edwin M. Truman of the Peterson Institute for International Economics in Washington said Greece had to go through more pain because it had run a budget deficit even before making payments on its debt, meaning it needed loans to pay off its loans.

Only after Greece reorganizes its budget, tax collection and labor market and is running a surplus — not including interest payments on the debt — can economists begin to calculate how much in debt payments Greece is actually able to afford, and then figure out how big a debt restructuring it needs.

“As long as they’re running a primary deficit, they need to keep tightening the belt,” Mr. Truman said. “Rescheduling now doesn’t relieve Greece of the burden of fixing the economy to create a surplus.”

Rachel Donadio reported from Athens, and Steven Erlanger from Paris.

Article source: http://www.nytimes.com/2011/06/23/world/europe/23greece.html?partner=rss&emc=rss

Greece Says Talks With Lenders End ‘Positively’

ATHENS — After weeks of tense negotiations with its foreign creditors, Greece said Friday that a review of steps it had taken so far to meet the terms of its bailout had ended “positively,” marking a big step toward the release of a further installment of emergency funding.

In a statement, the Finance Ministry did not state explicitly whether the fifth transfer from its €110 billion, or $159 billion, package — this one valued at €12 billion — had been approved.

But it said that discussions with representatives of the European Commission, the European Central Bank and the International Monetary Fund “concluded today positively,” having covered additional measures needed to meet the 2011 deficit target, including privatizations and “structural reforms to restore growth and competitiveness.”

The ministry said the additional measures would be discussed by the government “in the coming days” before being voted on in Parliament.

In a separate statement, the commission, E.C.B. and I.M.F. said “the next tranche will become available, most likely, in early July.” But it added that more talks on financing would be held over the next few weeks, and the decision would still require approval by the I.M.F.’s executive board and the group of euro-zone finance ministers.

The European Union and I.M.F. pledged the emergency loans in May 2010 to rescue Greece from defaulting on its massive debt. In addition to deciding whether to release the latest tranche, they are also considering whether to extend additional loans of up to €60 billion to give Greece more breathing room while it struggles with a deep economic downturn.

Talks on those additional funds have been moving forward in recent weeks, although Greece’s lenders are demanding additional efforts to raise revenue and privatize state assets.

The Greek government is set to announce a new austerity plan that envisages raising €6.4 billion through spending cuts and tax increases this year, and raising another €50 billion by 2015 through privatizations.

The measures were expected to be outlined later Friday by the Greek prime minister, George Papandreou, who flew to Luxembourg for talks with Jean-Claude Juncker, the head of the euro group of finance ministers.

The announcement came amid mounting public opposition in Greece to an ongoing austerity drive and growing rifts within the ruling Socialist party, which has failed in two attempts to secure a broad political consensus for more austerity measures. E.U. and I.M.F. officials have pushed the government to get all political parties to sign on to the measures to ease the implementation.

The Socialist government has a comfortable, 6-seat majority in Parliament, but several Socialist lawmakers have suggested they might vote against the new austerity proposals. A letter sent to Mr. Papandreou on Thursday by 16 Socialist members of Parliament, framed the question being posed continually in the Greek media: “A year after signing the memorandum [last year’s agreement with Greece’s creditors] we are at a crucial juncture again. Why?”

Public opposition to the new measures has been evident. Thousands of Greeks, including many young people, filled the main square outside Parliament for a tenth day on Friday, calling on the government to revoke measures and for foreign creditors to “go home.” The protests have been small by Greek standards but are growing in intensity, and there have been sporadic incidents of stone-throwing at politicians.

Government officials have claimed that some of those incidents have been orchestrated by the Communist party and the radical left party Syriza, which are both represented in Parliament.

On Friday, members of the Communist-affiliated labor union PAME stormed the Finance Ministry offices, which are located opposite Parliament, and strung up a banner calling for “an organized overthrow” and strike action.

The country’s main labor union, GSEE, which represents around 2 million workers, has called a one-day strike for June 9 and is joining the civil servants’ union, which represents about 800,000 people, for a general strike on June 15.

Article source: http://www.nytimes.com/2011/06/04/business/global/04euro.html?partner=rss&emc=rss

Pressure Builds for Greece and Portugal Despite Bailouts

ATHENS — The International Monetary Fund warned on Wednesday that Greece’s drive to shore up its troubled finances would fail unless it sharply accelerated its economic overhaul, and the European Central Bank hit back at suggestions that a debt restructuring might be the solution.

European finance ministers broke a taboo this week and acknowledged for the first time that some form of restructuring might be required to ease Greece’s debt burden, which at 150 percent of annual output is among the highest in the world.

They have said they could ask private creditors to agree to a voluntary extension of the maturities on their Greek debt but have also made clear that the priority is to ensure an acceleration of economic measures.

“The program will not remain on track without a determined reinvigoration of structural reforms in the coming months,” Poul Thomsen, an I.M.F. envoy who is monitoring Greece’s progress, told a conference in Lagonisi, near Athens.

“Unless we see this invigoration, I think the program will run off track,” he said, in one of the strongest warnings to Greece since it sealed the rescue one year ago.

Prime Minister George Papandreou’s government has struggled to rein in rampant tax dodging and is under acute pressure to begin selling off state assets to help Greece meet fiscal targets tied to last year’s €110 billion E.U./I.M.F. bailout.

Under its rescue terms, Athens is charged with reducing its budget deficit to 7.6 percent of G.D.P. this year. Mr. Thomsen said that without further measures Athens would not be able to get it much below 10 percent.

The euro struggled to hold onto gains against the dollar and the cost of insuring Greek debt against default rose on Wednesday amid ongoing talk of a restructuring.

In another sign of the stress on the euro-zone’s weakest countries, Portugal’s borrowing costs rose at a treasury bill auction on Wednesday, two days after E.U. finance ministers approved a €78 billion bailout for that country.

The Portuguese debt agency issued €1 billion of two-month treasury bills at an average yield of 4.657 percent, up from 4.652 percent in an auction of three-month paper — the closest comparable maturity — on May 4. The yield was above market expectations.

Separately, the National Statistics Institute said unemployment jumped to 12.4 percent in the first quarter from 10.6 percent a year ago, showing the strong economic headwinds the country faces after entering recession this year.

Euro-zone ministers have not spelled out how what they refer to as a “reprofiling” of Greek debt would work. Convincing private holders of Greek bonds to voluntarily accept later repayment could be difficult and require costly guarantees to avoid a hit to banks.

Such a move would buy Greece more time but not reduce its overall debt burden. Many economists believe it would be followed by a more aggressive restructuring involving “haircuts,” or forced losses, of 50 percent or more from 2013, when policymakers have said they could opt for radical steps.

The European Central Bank, which holds up to €50 billion in Greek sovereign bonds on its own books, has warned that even a “soft restructuring” would put the stability of the euro zone at risk.

“I’m opposed to soft restructuring because I don’t know what it means. Nobody knows what it means,” Lorenzo Bini-Smaghi, a member of the bank’s executive board, said in Milan on Wednesday.

Speaking in Athens at the same conference as Mr. Thomsen, another E.C.B. board member, Jürgen Stark, said it was an “illusion” to think such a move would resolve Greece’s problems. E.C.B. vice president Vitor Constancio said it should only be done as a last resort.

European politicians, however, are under pressure from angry taxpayers to broaden out the burden of their bailouts to include the banks that have bought up Greek debt in recent years.

But they have pledged not to force any losses on private holders of Greek debt before 2013, when a new anti-crisis facility — the European Stability Mechanism — is due to take effect.

Before that, any burden-sharing must be done on a voluntary basis, they have said.

“During the crisis, it was almost exclusively European taxpayers that ultimately bore the risk of investors’ decisions. That is inadmissible,” the German Finance Minister Wolfgang Schäuble said in a speech in Brussels.

“It was right to stop financial markets from disintegrating in the past but it would be wrong to cushion their losses in the future,” he added.

Article source: http://www.nytimes.com/2011/05/19/business/global/19euro.html?partner=rss&emc=rss