Greek Prime Minister Antonis Samaras today talked the junior partners in his fragile coalition government into dropping objections to new spending cuts demanded by the debt-crippled country’s bailout creditors, averting a crisis that could have eventually forced the country to abandon the euro.
Without the €11.5 billion package of cuts for 2013 and 2014, Greece would lose access to the international loan programme which is protecting it from bankruptcy and would probably be forced out of the common European currency.
“The prime minister said that it must be accepted – as a necessary condition for our country to remain in the eurozone and to be able to negotiate further - to further cut public spending by €11.5 billion,” Finance Minister Yannis Stournaras said. “That position was accepted.”
Socialist Pasok leader Evangelos Venizelos said he abandoned demands for some of the cuts to be delayed to avoid bringing down the six-week-old government and forcing new elections.
“If the prime minister believes that the immediate adoption of all the €11.5 billion measures will then allow him to negotiate (with creditors) and that only that will secure payment of the next loan instalments and the country’s position in the euro, I am obliged to accept his estimate,” Mr Venizelos told reporters. “We will not lead the country to elections.”
But Mr Venizelos insisted that the new cutbacks should not involve “unfair, across-the-board measures”.
He was speaking after two hours of talks with Mr Samaras, a conservative, and Fotis Kouvelis, head of the moderate Democratic Left party. It was their third meeting in less than a week.
Mr Kouvelis said the only agreement was that the government would “make a specific proposal” on the package, without providing any details of when that would happen.
He said party leaders “only discussed chapters and not specific numbers”, and pledged to avoid further pain for less well-off Greeks.
International bailout creditors are closely scrutinising the country’s lagging austerity and reform programme, and a negative report next month would probably lead to the vital rescue loans being halted.
That would leave the government unable to pay pensions, salaries and service its debts, which in turn could force Greece to abandon Europe’s common currency, unleashing a global market tsunami.
Senior Socialist official Panos Beglitis said ahead of today’s meeting that his party remains at odds with the conservative coalition leaders over the cutbacks, which he said “will not work” without major changes.
Mr Beglitis insisted that Greece needs a two-year extension in its austerity programme to make it workable. The economy is in a deep recession expected to reach a cumulative 20% since 2008, while unemployment is at a record high of almost 23%.
Mr Samaras’s coalition was formed after the June 17 general elections.
Greece has been relying on rescue loans from other eurozone countries and the International Monetary Fund since high interest rates pushed it out of bond markets in 2010. In return, it imposed harsh austerity, slashing pensions and salaries, repeatedly hiking taxes and increasing the retirement age.
Debt monitors from the International Monetary Fund, European Central Bank and European Union – known as the troika – are currently in Greece for an inspection, and are pressing the new government to make up for past delays in long-term structural reforms aimed at reducing the size of the public sector.
Analyst Martin Koehring, from the Economist Intelligence Unit, said the delays in identifying the new cutbacks are “not surprising, given the social and economic damage that the fiscal austerity programme has already done”.
“The centre-right New Democracy party will find it increasingly difficult to continue backing the austerity agenda without risking a collapse of the fragile coalition,” he said, adding that new elections would probably bring the opposition radical left Syriza party to power, which could take Greece out of the 17-nation eurozone.
“On balance, however, the troika of international lenders will try to help Greece find the necessary cuts in the next couple of weeks to ensure that Greece gets the next bailout tranche in September,” he said.
“The eurozone is currently not prepared for a Greek euro exit, and neither the new Greek government nor Greece’s international lenders are willing to risk a Greek exit over the latest austerity plans. This makes an eventual compromise likely in August.”
Mr Beglitis said the Socialists wanted to split the cuts and reforms into two stages and over a longer time period, to avoid pushing the country into deeper recession.
“Participation in a coalition government does not mean the unquestioning acceptance of everything,” he told state-run NET television.