Austerity plan doubted

Not long after Greece made the politically unpopular decision to slash government spending to ease its debt crisis, Germany’s finance minister questioned whether the deal goes far enough to earn approval of a crucial C130 billion bailout.

ATHENS — Not long after Greece made the politically unpopular decision to slash government spending to ease its debt crisis, Germany’s finance minister questioned whether the deal goes far enough to earn approval of a crucial C130 billion bailout.

Greece’s new austerity plan would make deep cuts to jobs and wages and it ignited fresh criticism from unions and the country’s labour minister, who resigned in protest. Finance ministers from the 17 countries that use the euro are meeting in Brussels to scrutinize the plan.

Greek prime minister Lucas Papademos earlier Thursday said that all major party leaders in the country’s coalition government had given their backing to a new round of painful spending cuts he had worked out with the European Union, the European Central Bank and the International Monetary Fund and that the talks “were successfully concluded.”

However Germany’s Finance Minister Wolfgang Schaeuble on Thursday warned that the new round of spending cuts appears to not yet fulfil all the conditions for a C130 billion bailout.

Germany is a leading force in the group of 17 countries that use the euro as their currency — the so-called “eurozone” — using its considerable economic clout to influence decision-making and policy.

“The agreement, as far as I understand, is not at a stage where it can be signed off,” Schaeuble said as he arrived in Brussels to meet with his eurozone counterparts, the heads of the European Central Bank and the International Monetary Fund. “It’s a stance in the negotiations that was agreed on but no one expects that this negotiation stance can get support.”

The crucial agreement in Athens came shortly after Greek Finance Minister Evangelos Venizelos arrived in Brussels for talks on the new bailout with his colleagues from the 17 euro countries. Although all other cuts demanded by the troika of bailout creditors were approved — including a 22 per cent cut in the minimum wage, firings of 15,000 civil servants and an end to dozens of job guarantee provisions — party leaders had balked at new pension cuts worth an estimated C300 million ($400 million), leaving the bailout in limbo and the threat of bankruptcy high.

A spokeswoman for Papademos’ office said earlier Thursday that the deal would allow alternatives to the rejected pension cuts. She did not elaborate on what the alternative proposals were. The spokeswoman spoke on customary condition of anonymity.

Greece needs the bailout by March 20 to redeem C14.5 billion worth of bonds coming due.

A forced bankruptcy would likely lead to the country’s exit from the euro common currency, a situation that European officials have insisted is impossible because it would hurt other weak countries like Portugal, Ireland and Italy.

But financial analysts fear a chain reaction similar to the financial meltdown triggered by the collapse of investment bank Lehman Brothers in the fall of 2008.

When eurozone leaders tentatively agreed on a second bailout for Greece in October, they set several key parameters that would have to be met for country to get more aid.

Those included bringing Greece’s debt level down to 120 per cent of economic output by 2020, limiting official rescue loans to C130 billion and getting firm approval from all Greek political forces that new spending cuts and reforms would actually be implemented.

“Those general requirements are not fulfilled yet,” Schaeuble said, adding that no decision on the new bailout was expected at Thursday’s meeting.

In addition to the new austerity measures, another method to reach the October targets is a deal with banks and other private bondholders to forgive Greece some C100 billion in debt.

However, last week an EU official said that even taking into account the debt forgiveness and planned austerity measures, a gap of some C15 billion remained to reach the targets.

The EU hopes that the ECB, which holds a significant amount of Greek bonds, will contribute to closing that gap, but the central bank has so far dodged questions on whether it will participate.

Jean-Claude Juncker, the Luxembourg prime minister who will chair Thursday’s meeting, also said that no decision was expected. “There are still a lot of uncertainties,” he said, referring to the Athens deal.

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