Greece is gearing up for crunch talks with European creditors this week as it struggles to get its finances under control amid persisting rumours that the country is on the brink of bankruptcy.
“For months Greece has been in a vicious circle,” says Dimitris Katsikas from the Hellenic Foundation for European and Foreign Policy.
“Inspectors from the European Union and International Monetary Fund (IMF) come to Athens - they say that fiscal targets are not being met and leave - and the government implements more austerity measures - namely taxes, leaving the country in a deeper recession.” Greece is set to resume suspended talks with international creditors on Wednesday after they threatened last week to withhold a sixth bailout tranche of about 8 billion euros because of the country’s repeated fiscal slippages.
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After German policymakers at the weekend suggested that an orderly default may be in the cards for Greece, the government made a sudden decision to impose a two-year property tax to raise 2 billion euros (2.8 billion dollars) and plug a 2011 budget gap identified by the EU and IMF.
The EU’s Commissioner for Monetary Affairs, Olli Rehn, welcomed the move saying it went “a long way” towards meeting the country’s targets.
But even as Greece pledged a fresh course of action, stocks continued to nose-dive in financial markets across Europe and Asia, leaving many to wonder whether the country’s efforts to cut its deficit were enough.
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“For months the government was dragging its feet on implementing the necessary reforms and the EU and IMF know this,” said Mr. Katsikas, adding “the new measures [the property tax] may be enough to temporarily satisfy creditors but the government needs to immediately act on structural reforms to get out of the crisis.” Foreign auditors have pressed Greece to speed up privatizations and focus on structural reforms and spending cuts, by cutting down on the large number of civil servants.
Greece was granted a 110-billion-euro bailout loan in May 2010, linked to strict austerity conditions. It was also promised a second bailout worth 109 billion euros in July.
The ruling Socialist PASOK government, under the leadership of George Papandreou, has had to slash salaries and pensions as part of a wave of painful austerity measures to secure the international loans.
But Greece’s deputy finance minister said on Monday the government had only enough cash to operate until next month, highlighting the country’s urgent need for the next emergency loan.
“We are trying to guarantee that the state can continue to pay salaries without problems until October,” Deputy Finance Minister Filipos Sachinidis told television channel Mega, when asked about the government’s ability to pay civil servants’ wages and pensions.
At the end of August an independent Greek parliamentary committee of experts warned that Greece’s debt was veering out of control and the country was unlikely to meet its deficit targets for the year.
On Monday, Finance Ministry data released from Brussels showed Greece’s budget deficit to have widened by an annual 22 per cent in the year to August, to 18.1 billion euros.
Finance Minister Evangelos Venizelos has said the economy will shrink by about 5.3 per cent this year and blamed the budget shortfall on a bigger than expected recession.
As politicians and international creditors discuss the country’s fate, public anger continues to erupt on the streets.
At the weekend, thousands of people, from taxi drivers to students, took part in violent demonstrations in the northern port city of Thessaloniki against the austerity measures and rising unemployment.
Greek workers at the country’s public power corporation have threatened to block the new property tax, which the government plans to collect through electricity bills to ensure that citizens will pay it quickly.
“This is unfair - we are already paying enough taxes and now the government is forcing us into a corner with no way out,” said Hara Dragosi, a secretary and mother of three.