Bloomberg News

Greece Needs to Show Budget-Cutting ‘Determination,’ EU Says

May 30, 2012

Greece must pursue budget cuts with “determination” to be eligible for more emergency aid, warned the European Commission, which said it may review progress two weeks after the country’s June 17 election.

The message highlights the limited room that the next Greek government will have to renegotiate fiscal-austerity conditions tied to international aid. Greeks return to the polls next month after an inconclusive May 6 vote catapulted a party opposed to the rescue terms into second place, raising concerns that Greece may have to abandon the 17-nation euro.

Greece, which has struggled to meet targets for narrowing its budget deficit while receiving aid pledges of 240 billion euros ($299 billion) over the past two years, faces a cumulative fiscal gap in 2013-2014 of 5.5 percent of gross domestic product, according to the commission.

“Greece will therefore have to make substantial additional expenditure cuts in the coming months,” the commission, the European Union’s executive arm in Brussels, said in a report today. “Comprehensive international financial assistance can continue to be provided only if policy implementation improves.”

The report, part of an annual assessment of budget programs across the 27-nation EU, lists shortcomings by Greek authorities in enacting an economic overhaul first outlined when Greece got an initial 110 billion-euro rescue from the euro area and the International Monetary Fund in May 2010. A second 130 billion- euro loan package, coupled with the biggest writedown of privately held debt, followed this year.

‘Insufficient Progress’

The commission cited “insufficient progress” by Greece in bolstering tax collection and improving public procurement and said the sale of state-owned assets has been “slower than planned.”

Such shortcomings have increased skepticism in euro nations such as Germany, the Netherlands and Finland about aiding Greece, while a Greek recession in its fifth year has made domestic voters critical of the fiscal-austerity demands.

Greece narrowed its deficit from more than 15 percent of GDP in 2009 -- five times the EU limit -- to 9.1 percent in 2011. The country’s spending gap is due to fall to around 7 percent of GDP this year.

Financial-Rescue Terms

Most Greeks want to see the financial-rescue terms revised while acknowledging that failing to abide by them may result in the country leaving the euro, according to a Greek opinion poll broadcast today on Mega TV. Syriza, the party that came in second in the May 6 election, says its wants to alter the bailout conditions while keeping Greece in the euro.

EU Economic and Monetary Affairs Commissioner Olli Rehn called the aid arrangement a “solidarity pact” between Greece and its public creditors and urged Greeks to fulfill the conditions.

“It is important that all parties to this solidarity pact respect their respective commitments,” Rehn told reporters in Brussels.

The commission and IMF review of Greece’s eligibility for the next disbursement of aid depends on the outcome of the June 17 election and is provisionally scheduled to take place in “late June/early July,” according to today’s report.

“The determination of the Greek authorities to stick to the agreed policies will be tested in the coming months when deficit-reduction measures to close the large gap for 2013-2014 need to be identified,” the commission said. “Implementation risks will remain very high. The success of the second program depends chiefly on Greece.”

To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


Video Game Avenger
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus