The European Union (EU), International Monetary Fund (IMF) and European Central Bank inspectors gave tepid approval for a vital aid tranche to Greece on Tuesday, saying that despite some fiscal progress Athens was lagging on privatisations and structural reforms needed to exit its debt crisis.
Known as the troika, the inspectors said in a joint statement that an €8-billion tranche Greece needs to avoid imminent bankruptcy would probably be made available in early November, after approval by eurozone finance ministers and the IMF.
“It is essential that the authorities put more emphasis on structural reforms in the public sector and the economy more broadly,” the statement said.
EU leaders are racing to put together a second €109-billion bailout deal agreed in July to try to prevent the Greek crisis from spreading out of control, after an initial €110-billion bailout proved insufficient.
“It was a political decision, not a decision for experts or economists to take. They are not ready yet to take the risk of pulling the plug on Greece,” said Joerg Kraemer, a Frankfurt-based economist at Commerzbank.
This was the troika’s last review under the first bailout and the inspectors said the success of Greek programme now hinged on getting enough private sector and state funding for the second programme.
After Greece admitted it would miss its deficit targets for this year, there is growing doubt whether the planned second bailout will be enough either.
The troika will take at least a week to give a full report to EU ministers and the IMF board which will take the final decision on the aid. Greece has cash until November and faces almost €3-billion worth of bonds expiring in December.
The inspectors confirmed Greece would miss its 2011 deficit target because of a deeper-than-expected recession but also slippages in implementation. Additional measures, if applied rigorously, should be sufficient to meet 2012 targets.
But it said even more belt-tightening would be required to achieve 2013/14 targets and that should be in place by mid-2012.
“It is essential that such measures focus on the expenditure side,” it said, repeating its message that Greece must shrink its wasteful public sector rather than keep levying growth-stifling taxes to cut deficits.
Greece, in deep recession and struggling to contain a public debt expected to hit 162% of gross domestic product this year, has promised sweeping austerity measures, including severe wage cuts for many public sector workers, mass layoffs and tax hikes that will hit middle class Greeks hard.
On Tuesday, civil servants blocked the general accounting office and the Interior Ministry, waving banners reading “Broke and Fired” and “No to Layoffs, no to cutting wages”. Thousands of local government workers also marched on Parliament.
In some areas of Athens, garbage was piled high on the streets as waste collection workers went on strike, while at Greece’s biggest state refiner Hellenic Petroleum, workers protesting at planned wage cuts also walked off the job, threatening fuel shortages.
EU officials have repeatedly criticised Athens for delays in implementing reforms and eurozone ministers postponed any release of the aid by a month to November to keep up pressure on the government.
The troika said privatisations and structural reforms were the weakest areas and urged Greece to step up efforts.
“As overall progress has been uneven, a reinvigoration of reforms remains the overarching challenge facing the authorities,” it said.
Although a privatisation fund has finally been set up, sell-off targets will be missed in 2011, the troika said. The government remained committed to producing €35-billion in revenues by 2014.
Finance Minister Evangelos Venizelos, who had repeated meetings with the inspectors in recent days, welcomed the troika statement as positive and balanced and said Greece was determined to regain its credibility.
“We must, for the good of the country, catch up on reforms,” he said in a statement. “It’s important to do all that must be done before the tranche is delivered, even before the October 23 EU summit.”
Venizelos is expected to brief ruling party Pasok lawmakers later on Tuesday on pension cuts and a controversial plan to put tens of thousands of state workers on the road to redundancy.
The main conservative opposition New Democracy, which is riding a wave of public discontent with austerity to lead opinion polls, on Tuesday asked the government to call snap elections, saying its policies failed.
“It must change policies and try to restart the economy, complete fast reforms and cut state waste,” it said in a statement. “If it can’t, it must seek the public’s verdict and leave.” — Reuters