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Greece Fails To Unite On Vital Savings Plan

by Ulrika Lomas,, Brussels

31 July 2012

Despite days of political wrangling and the clear urgency of the situation, Greece’s coalition government has failed to unite on the finance ministry’s EUR11.5bn (USD14.2bn) savings plan for 2013 and 2014.

The conservative-led government’s two-year savings plan, said to include cuts to pensions, health care, and welfare benefits, failed to get the backing of coalition partners the Socialists and the Democratic Left.

Time is of the essence, however, as international inspectors from the Troika, namely the European Union, the International Monetary Fund, and the European Central Bank have now arrived in Athens to assess the country’s progress as regards implementation of the austerity programme, agreed within the framework of its second international bailout deal.

On the brink of bankruptcy and at ever increasing risk of exiting the eurozone, Greece must achieve a consensus on the necessary additional savings cuts to ensure disbursement of further bailout funding.

Greece has repeatedly failed to respect its budgetary targets imposed under the terms of its rescue packages. The government has recently called once again for an extension to the latest fiscal adjustment programme, seeking a further two years to achieve its deficit targets.

While determined to show support for Greece, European Commission President Jose Manuel Barroso nevertheless warned Prime Minister Antonis Samaras that his government must honour its commitment to reform. Delays will not be tolerated, Barroso stressed.

Following months of gruelling negotiations, eurozone finance ministers finally gave their seal of approval back in March to a second EUR130bn bailout package for Greece.

The go-ahead followed completion of the exchange of privately held bonds, aimed at reducing the country’s debt by over EUR100bn.

In return for the aid package, Athens had agreed to a series of painful budgetary cuts, including plans to lower the minimum wage by 22%, to freeze civil servant pay and to cut pensions. The deep budgetary cut measures were in addition to debt restructuring.

Debt-ridden Greece had already adopted multiple waves of austerity measures over the course of the past few years, including income tax increases, and an extension of the new property tax, aimed at appeasing international creditors. The government had also pledged to clamp down on what it acknowledged at the time to be rampant tax evasion.

In its fifth consecutive year of recession, Greece must reduce its deficit from 9.3% of gross domestic product (GDP) last year to 3% of GDP by the end of 2014.

The Troika is expected to present its report on Greece’s progress in September.

TAGS: tax | economics | pensions | European Commission | property tax | fiscal policy | gross domestic product (GDP) | budget | International Monetary Fund (IMF) | Greece | individual income tax | European Union (EU) | Europe

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