Papandreou Convenes Cabinet on Accelerating Cuts to Get Aid

Greece's Prime Minister George Papandreou
Greece's prime minister George Papandreou. Photographer: Kostas Tsironis/Bloomberg

Greek Prime Minister George Papandreou convenes his Cabinet to press for accelerating budget cuts to ensure the next tranche of an international rescue package is delivered next month to stave off default.

Today’s 11:30 a.m. meeting in Athens follows two days of telephone consultations between Finance Minister Evangelos Venizelos and representatives from the European Union and International Monetary Fund, which made “good progress,” the EU said.

The meetings were intended to damp concerns that Greece may miss deficit-reduction targets required to receive rescue loans. The EU statement said a “full mission” will return to Athens next week after Venizelos’s talks in coming days at the IMF annual meeting in Washington.

Staying in the euro area is an “irreversible and fundamental national choice,” Venizelos said in a statement yesterday. “We acknowledge that our fiscal data and economic structures are a problem for the euro area, which we are determined to tackle once and for all.”

The EU comments suggest the next payment for Greece is likely to be released next month as Papandreou counters investor doubts that he can avoid default. As Greek unions today consider holding a 24-hour strike on Oct. 5 against austerity, European leaders are squabbling over the terms of a July 21 agreement for a second Greek rescue and the prospect that they will be forced to channel more money to keep Greece in the currency union.

Greek subway, tram, train, bus and trolley workers will hold a 24-hour strike in Athens tomorrow to oppose government plans to reduce the public sector, according to a spokeswoman at the Greek Transit Workers Union press office.

‘Very Difficult’

Greek Foreign Minister Stavros Lambrinidis indicated yesterday in a speech in New York that new sources of revenue are needed because deficit cutting in economies such as Greece impair their growth. “It’s very difficult to close that gap if you don’t have enough earnings,” he said at the Foreign Policy Association’s 2011 World Leadership Forum dinner in New York.

European countries and the U.S. should consider taxing financial markets, which made “major miscalculations” that contributed to the global financial crisis in 2008, Lambrinidis said.

Greek bonds fell today on concern the country would fail to qualify for the payment, the latest from a 110 billion-euro ($151 billion) bailout agreed upon last year. The yield on the two-year notes rose 186 basis points to 66.04 percent at 10:10 a.m. in Athens.

While Greece says it has enough cash to cover its needs for October, any disbursement of new funds would likely only see it through to the end of the year.

Talks Resuming

Talks on the Greek aid payments resumed after IMF and EU monitors earlier this month suspended the review for a sixth tranche of loans following the discovery of an unexpected hole in the budget.

The austerity measures demanded in return for the emergency loans are deepening a three-year recession, making it harder for the government to meet the deficit goals laid out in its aid package. The IMF’s representative in Athens said Sept. 19 the economy will shrink 5.5 percent this year and another 2.5 percent next year, before growth resumes in 2013.

Preliminary numbers showed the deficit widened 22 percent to 18.9 billion euros, more than the target of 18.1 billion euros for the period. Greece pledged to reduce its deficit to about 7.5 percent of gross domestic product this year from 10.5 percent in 2010.

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