Greece enters the final stretch on a tough new round of austerity cuts with the return of creditor auditors this week after a breakthrough in arduous talks between its political leaders.
Senior representatives from the EU, the IMF and the European Central Bank (ECB) — Greece’s so-called ‘troika’ of creditors — were to return to Athens yesterday.
They had given the coalition government of Greek Prime Minister Antonis Samaras a week to finalize the austerity package worth 13.5 billion euros (US$17.5 billion) in order to unlock 31.5 billion euros in frozen EU-IMF loans.
The support funds, part of a Greek bailout worth 130 billion euros overall, had been suspended in May when reforms ground to a halt in a political stalemate as the country held double elections before a government could be formed.
Samaras has been trying to overcome opposition from his socialist and moderate leftist parties allies in government, who have warned against imposing sweeping new cuts on a nation already slogging through a third year of austerity.
After weeks of abortive talks, Greek Finance Minister Yannis Stournaras on Friday said the coalition had agreed on the “main points” of the austerity package and that the approval of the ‘troika’ and of Greece’s EU peers was now required.
Eurozone finance ministers are meeting on Oct. 8, and a EU summit on Oct. 18 and Oct. 19 is expected to decide on the Greek request for a two-year extension, which EU and IMF officials say may require extra funding.
According to a finance ministry source, the package includes around 7 billion euros in cuts affecting higher pensions, benefits and the salaries of better-paid civil servants such as judges, professors and police officers.
Another 3.5 billion euros is to be saved from organizational reforms and the early retirement of 15,000 civil servants.
And a further 3 billion euros is to be raised in additional taxes.
The package was presented by head of Greece’s financial experts team, Panos Tsakloglou, at a euro working group meeting in Brussels on Thursday, the finance ministry source said
It is to be submitted alongside next year’s draft budget to parliament today.
After two years of austerity, nearly one in four Greeks is unemployed according to official figures which unions say only give a partial picture.
Separately, after four years fighting the markets and a mushrooming economic crisis, Spain appears finally poised to cave in and apply for a sovereign bailout.
The economic descent has accelerated in the past few days: rising anti-austerity protests; snap elections over independence demands in Catalonia; and, this weekend, a darkening outlook for debt.
Hovering over the nation is the imminent threat of a sovereign debt downgrade by Moody’s Investors Service, which was due by the end of the past weekend, which could rate Spanish bonds at the equivalent of junk bonds.
The next test comes on Thursday when Spain will try to sell bonds expiring in two, three and five years on the same day that the ECB holds its monthly meeting.
Spanish Prime Minister Mariano Rajoy is scheduled to host the EU’s economic affairs chief, Olli Rehn, today.
The market reaction will demonstrate whether Madrid has managed to reassure investors.
“The next hurdle is the bailout which at this point appears to be inevitable,” said Craig Erlam, analyst London-based foreign exchange broker Alpari.