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Greece Squeezed on Cuts as Troika Sees Last Chance, Piraeus Says

Sept. 21 (Bloomberg) -- International Monetary Fund, European Union and European Central Bank officials are pressing Greece on budget cuts now because they have maximum leverage, Piraeus Bank SA analysts said in a research note.

Greece doesn’t have a bond maturing until December and euro-area governments have yet to ratify a July 21 agreement that includes a second bailout for the country and an overhaul of the region’s rescue fund.

“This is possibly the last opportunity to press in the direction of structural changes and spending cuts because the full implementation of the July 21 decisions will decisively increase the level of co-dependence between the euro area and Greece,” said Piraeus Bank analysts, led by Ilias Lekkos, the chief economist.

While there is always a rise in friction between Greece and the so-called troika before the release of each aid installment, “this time the differences are particularly pronounced as the troika appears determined to impose significant spending costs and, as a result, a substantial reduction in the size of the state,” Piraeus said.

The troika deemed additional measures announced by Greece on Sept.11, including a new special property tax and a cut in salary for all elected officials, as “inadequate” leading the government to seek further permanent measures, according to the note.

Without additional cuts, Greece’s budget deficit in 2011 would be as much as 9 percent of gross domestic product compared with the 7.5 percent target.

Finance Minister Evangelos Venizelos, who’s negotiating a second financing package with the EU and IMF, has said the contraction of Greece’s economy will be 5.5 percent this year. He has pledged that the government will accelerate further austerity measures to ensure continued support after EU officials said payment of a sixth tranche of bailout loans will be withheld unless Greece meets its deficit targets.

To contact the reporter on this story: Paul Tugwell in Athens at

To contact the editor responsible for this story: Angela Cullen at

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