ATHENS — In an abrupt U-turn, Greece’s conservative junior coalition leader has written to international creditors telling them he backed the country’s fiscal targets, clearing a major sticking point to get a desperately needed loan that will prevent a devastating Greek bankruptcy.
In a letter Wednesday to the heads of the European Union and the International Monetary Fund, Antonis Samaras said his conservative New Democracy party also supports many of the austerity measures the debt-wracked country has already implemented.
The letter was made public hours after German Chancellor Angela Merkel issued a blunt warning that rescue loans would remain frozen until Greece’s fiscal targets received cross-party backing.
While naming public expenditure cutting, fighting tax evasion, structural reforms, and privatizations among the measures he backs, Samaras made no mention of tax hikes to bolster flagging state revenues, which he has vocally opposed in the past — advocating tax cuts instead.
“On the evidence of the budget execution so far, we believe that certain policies have to be modified,” Samaras wrote. “We intend to bring these issues to discussion, along with viable policy alternatives.”
Heading for a fourth year of deep recession and with unemployment at a record high, Greece has implemented repeated pension and wage cuts — coupled with heavy tax increases and a rise in retirement ages — to cut bloated budget deficits. The deeply resented austerity measures have triggered a series of violent protests over the past two years, with the country’s two biggest labour unions calling a new general strike for next week.
Greece’s international creditors have insisted that Samaras, along with other party leaders supporting the country’s new interim coalition government, must commit in writing to backing the country’s new C130 billion ($174 billion) bailout plan approved last month.
Otherwise, the vital next C8 billion ($10.71 billion) loan installment — from the C110 billion bailout agreed on in May 2010 — will not be released.
German Chancellor Merkel spelled that out again earlier Wednesday.
“The Greek question is still unresolved because we do not yet have the preconditions to pay out the next installment,” Merkel told Parliament in Berlin.
Greece’s second international bailout includes provisions for banks and other private holders of Greek bonds to write off 50 per cent of their Greek debt holdings, potentially cutting the country’s debt by C100 billion ($134 billion).
Without the next loan installment, Greece would go bankrupt before Christmas and could eventually be kicked out of the 17-member eurozone, reverting to a devalued version of its pre-2002 drachma currency.
The country’s central bank governor dramatically highlighted the quandary, saying Wednesday that the Oct. 26 new bailout deal was “a last chance” for Greece to keep using the euro.
Presenting the bank’s interim monetary policy report, George Provopoulos urged the government to clean up its act and avoid new deviations from fiscal revival policies.
“We must quicken our pace, not only to reach our targets but to surpass them,” he said. “Because what’s at stake now is very large: whether we remain in the euro. So I think most Greeks have no question when it comes to this type of dilemma. We must succeed.”
The report said Greece has so far failed to persuade markets and ordinary citizens that it can make its cost-cutting and reform targets.
“The situation remains critical,” the report said. “Economic policy has often been conducted in a piecemeal manner, indecisively, with backtracking and delays, and following rather than leading developments.”
It added that the government is focused on “indiscriminate and across-the-board approaches ... to curtail public spending, while the mechanisms that are inherently cost-generating remain untouched; this outcome prevails because the public administration is unable to work out targeted solutions, which would be more effective and socially more equitable.”
The report said the economy is expected to shrink by 5.5 per cent or more in 2011, before slowing to 2.8 per cent next year and reverting to modest growth in 2013.
Greek Prime Minister Lucas Papademos’ new government was appointed earlier this month after political turmoil led to the resignation of Socialist Prime Minister George Papandreou. Papademos is a former central banker and deputy head of the European Central Bank. The technocratic government is expected to lead Greece until early elections in February.