Greece’s Cabinet met yesterday to discuss how to implement a new round of austerity measures despite a surge in unemployment and a punishing recession, hoping to make sure the debt-strapped nation keeps receiving rescue loans and staves off default.
The meeting came a day after the leaders of Germany, France and Greece insisted in an emergency teleconference that Greece remains an “integral” part of the eurozone, but stressed the country must meet its reform pledges.
The outcome of the talks between German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou calmed markets after days of turmoil sparked by fears Greece was heading rapidly for a catastrophic default or leaving the 17-nation eurozone.
“We are still in a scenario where Greece is facing immense difficulties and the markets feel Greece’s debt can’t be resolved,” KBL Richelieu financial analyst Benoit de Broissia said.
“So markets are still speculating on Greece’s bankruptcy, although short-term the ‘troika’ is expected to release funds for Greece,” he said, referring to the name for Greece’s debt inspectors: the IMF, European Central Bank and European Commission.
The main fear of a Greek bankruptcy is that it could destabilize other financially troubled European countries such as Portugal, Ireland, Spain or Italy. It would also affect banks, many of which are large holders of Greek government bonds. Moody’s on Wednesday downgraded the credit ratings of two French banks.
Greece relies on funds from its bailout loans from other eurozone countries and the IMF, but that money depends on Greece meeting debt reduction targets and passing quarterly reviews.
On the table in yesterday’s Cabinet meeting were restructuring public TV, merging state entities and toughening the civil service disciplinary code. Public TV and radio workers planned a four-hour work stoppage and a demonstration outside parliament to protest plans to shut down a state TV channel.
Greece, heavily in debt and in its third year of recession, responded to pressure from rescue creditors by imposing a new round of taxes expected to worsen hardship already facing wage-earners: an additional tax levy and emergency property tax to be raised through household electricity bills.
The cuts come as unemployment has surged, reaching 16.3 percent in the second quarter of this year compared with 11.8 for the same period a year ago, the Greek Statistics Authority said yesterday.
The eurozone’s finance ministers are to discuss the measures today at a meeting in Poland also attended by US Secretary of the Treasury Timothy Geithner.
The troika suspended its review of Greece’s reforms earlier this month, and is due back in Athens in the coming days to complete its recommendation as to whether the country should receive the next batch of bailout loans, worth 8 billion euros (US$11 billion). Without it, Greece only has enough cash to see it through the middle of next month.
After the review’s suspension, the government announced it would impose an additional tax on all property owners. The Greek Finance Ministry said late on Wednesday the new tax would be on a sliding scale according to neighborhood and the age of the building.
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