Greek political leaders struggled to clinch agreement on an 11.5 billion-euro ($14 billion) package of budget cuts, as international creditors began a review of Greece’s progress that may determine its future in the euro.
Prime Minister Antonis Samaras and his coalition partners, Evangelos Venizelos of Pasok and Fotis Kouvelis of Democratic Left, are to meet again on July 30 to determine the savings required to receive the funds pledged under Greece’s two rescue packages totaling 240 billion euros. European Commission President Jose Barroso urged Samaras to make good on promises.
“The key word here is deliver,” Barroso said after meeting the premier, the first visit to Greece by a senior European Union official in more than a year. “Deliver, deliver, deliver. The delays must end. Words are not enough.”
Greece, which held consecutive elections in May and June as public opposition to spending cuts grew, risks running out of money without the disbursement of 4.2 billion euros due last month as the first instalment of a 31 billion-euro transfer. Citigroup Inc. said there’s now a 90 percent chance Greece will leave the euro in the next 12 months to 18 months.
The coalition government leaders met after Finance Minister Yannis Stournaras held his first talks of the review with the “troika” of officials representing the euro area, the European Central Bank and the International Monetary Fund.
“We are not done,” Kouvelis told reporters after the meeting. “The economic situation is extremely difficult but society on the other hand can’t stand being bled any more.”
Since forming his coalition government, Samaras has promised more asset sales to pay down debt and help finance an additional two years to the program agreed with creditors to restore economic health. He and his partners are trying to avoid the across-the-board pay and pension cuts that have driven the country into the worst recession since World War II.
Greece’s two elections in six weeks derailed planned reforms, halted state-asset sales and fanned concerns over whether the country can remain in the 17-nation euro bloc.
“All want to contribute to achieving fiscal targets,” government spokesman Simos Kedikoglou told reporters in Athens. “Everyone is seeking in this negotiation alternative choices so that this happens with a sense of social justice and without further recession.”
Failure to satisfy the troika on budget cuts and other reforms promised under the two packages may threaten Greece’s place in the euro.
Barroso said he was encouraged by Samaras’s pledges to step up state-asset sales and to keep to promises made under a 130 billion-euro second rescue package earlier this year. Sticking to commitments would ensure the country’s place in the euro, he said.
“Staying in the euro is the best chance to avoid worse hardship and difficulties for the Greek people, mainly for those in vulnerable positions.” he said. “Greece is part of the European family and the euro area and we intend to keep it that way.”
Citigroup updated its forecast for a Greek exit from the currency area from a previous estimate of 50 percent to 75 percent, and said it would most likely happen in the next two to three quarters. The bank assumes a Greek exit would occur on Jan. 1, 2013, while saying that isn’t a forecast of a precise date.
Robert Mundell, a Nobel Prize-winning economist, said the Citigroup report doesn’t help the situation.
Debts in Euros
“In Greece, getting out of the euro doesn’t change the fact that the debts are in euros,” Mundell said in Athens today. A euro exit and devaluation of a new currency could lead to a doubling of Greece’s existing debt, he said. If Greece defaults, it would make more sense to do it within the euro area, Mundell said.
Venizelos, the head of Greece’s Pasok party and a former finance minister who negotiated the second bailout earlier this year, said the continuous speculation of a Greek exit is undermining the country’s attempts to reform its economy as well as hurting other nations.
“Sacrificing Greece will prove suicide for the euro area,” Venizelos said. He said it was imperative that the current bailout plan be extended to the end of 2016.
Greece has to reduce its budget deficit to 7.3 percent of output this year from 9.1 percent in 2011. With the economy shrinking about 7 percent, more than forecast, Stournaras has said the goal is to reach the nominal target of 14.8 billion euros for this year’s deficit, not the ratio.
The ECB holds the lion’s share of Greece’s residual debt after private bondholders forgave 100 billion euros in the biggest debt restructuring in history in March.
Euro-zone governments are weighing options including asking the ECB to accept losses from Greek bonds and coaxing private creditors who didn’t take part in the March writedown to do so now, German newspaper Die Welt reported today, without saying where it got the information.
“I cannot understand why anybody should be talking about restructuring or any other such measures,” Thomas Wieser, head of the group that prepares meetings of euro-area finance ministers, said in an interview on Bloomberg Television.
“I would regard any question of what should be changed with the program as being completely premature” until the troika’s assessment is complete, Wieser said. “There is very strong political will to do whatever it takes to bring the program back within the parameters.”