Greek leaders appealed for support at home and abroad to avert default before key legislative votes as the U.S. criticized European leaders for moving too slowly to stem the debt crisis.
Prime Minister George Papandreou traveled to Berlin two days before German lawmakers ratify an overhaul of the euro rescue fund, pledging success in a struggle to restore budget balance. Finance Minister Evangelos Venizelos promised “superhuman” efforts hours before a vote in Athens on an unpopular property tax needed to avoid default.
President Barack Obama underscored the urgency late yesterday when he said European governments are “trying to take responsible actions, but those actions haven’t been quite as quick as they need to be.” His treasury secretary, Timothy F. Geithner, said Europe has “not very much time” to act.
Concerns that Europe’s debt crisis may plunge the global economy into recession dominated weekend talks of policy makers, investors and bankers in Washington, where the International Monetary Fund and World Bank held their annual meetings. Geithner called on euro-area leaders to beef up their 440 billion-euro ($594 billion) bailout fund, warning that failure threatened “cascading default, bank runs and catastrophic risk.”
European stocks rallied for a third straight day as investors bet that policy makers will heed the warnings to step up their efforts. The benchmark Stoxx Europe 600 Index climbed 4.2 percent, the biggest daily gain since May 2010.
Europeans ‘Get It’
“What I learned in Washington is that Europeans finally get it,” Mohamed El-Erian, chief executive and co-chief investment officer at Pacific Investment Management Co., the world’s biggest manager of bond funds, said in a radio interview today on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “They are going back and will try to do something about it. This was a very important wake-up call for Europe.”
With 154 votes in the 300-seat chamber, Papandreou needs to rally his Pasok socialist lawmakers as he did in June to push through budget cuts and asset sales. Three months after that vote, which cost Papandreou two of his deputies, a deepening slump forced him to impose additional cuts and the real-estate levy affecting owners of 5 million homes and stores.
“The parliamentary votes on the required measures will be close,” said Wolfango Piccoli, an analyst in London at Eurasia Group. “Some Pasok deputies could resign ahead of the crucial voting sessions, but the government is expected to secure the parliamentary approval for the necessary laws and the release of the 8 billion-euro loan.”
Greece faces a “moment of truth” and has to fully implement its savings plans in order to qualify for the next installment of international aid, European Commission spokesman Amadeu Altafaj told reporters in Brussels yesterday.
He said that euro-area ministers are unlikely to approve the payment at their Oct. 3 meeting as originally planned. Greece has said it needs the money next month. Venizelos said today he expects the decision to be made and the money received “in time.”
Papandreou, who is dining with German Chancellor Angela Merkel in Berlin, said Greece can overcome the debt crisis and bolster all Europe with the help of stronger leadership from policy makers.
Greece will live up to all its commitments and deserves “respect” for its efforts thus far, Papandreou said in a speech to the German industry federation. He noted that from a “huge” primary budget deficit in 2009, Greece will probably see a primary surplus next year.
Greeks ask whether this is a Sisyphean task or whether the country can surmount the crisis, Papandreou said. “My answer is yes we can,” he said. “Greece has the potential, Europe has the potential,” and can achieve it through global cooperation. “We are not a poor country, we’re a country that has been governed badly.”
Venizelos has announced an additional 20 percent wage cut, on top of 15 percent for the civil service and 25 percent in the wider public sector. Pensions are being reduced 4 percent on average, in addition to previous cuts of 10 percent. A lowering of the tax-free threshold to 5,000 euros will mean higher taxes for all Greeks.
The two most contentious issues are a property tax to be levied via electricity bills, which will provide an annual yield of 1.1 percent of gross domestic product, and plans to put 30,000 public servants into a “reserve” system on reduced pay. Implementation laws will be approved by Parliament in October, Venizelos said today.
More than 74 percent of 1,002 Greeks polled by Rass for To Paron newspaper opposed the property tax. The poll also showed that 59 percent believed Papandreou’s government won’t be able to avert a default. The survey had a 3.1 percentage point margin of error. Papandreou trails the opposition party in all polls.
Unions have already called general strikes for Oct. 5 and Oct. 19, while public transit companies including the subway in the Greek capital have held strikes over the past few days to oppose the measures.
“Implementation of the measures is the biggest challenge for the government as the trade unions and parts of the civil service will mount significant resistance, raising the risk of inertia and inaction,” said Piccoli.