The scale of the austerity measures to be undertaken by Greece was still not clear last night. Some sources put it at €24bn, including the retirement age being raised from 53 to 67, a wage freeze for public servants and the loss of the extra two months salary each year for employees.
Once the Greeks accept the measures being negotiated with the European Commission and the IMF, the finance ministers of the 16 eurozone countries will have to agree to activate the loan package.
They are expected to do so during a conference call tomorrow, effectively releasing a €30bn loan from eurozone countries this year for Greece.
Some countries that have approved the loan will be able to make it available as early as Monday. But all eyes will be on Germany, whose parliament is to vote on its share of €8.6bn towards the end of the week, just ahead of regional elections on May 9.
The IMF will need to bring the programme back to its board for approval, which should next week. This should ensure that Greece has the €9bn it needs to repay debts due on May 19. Legislation is expected to come before the Oireachtas later this month to release Ireland’s€450 million.
The three-year loan of €120bn, with about a third coming from the IMF, means Greece will not need to borrow from the markets until 2012, giving it a much needed respite to get its budget deficit down from more than 13% of GDP to 3%.
Portugal, despite being seen as the next target for the markets, will lend money to Greece as part of the eurozone package, Prime Minister Jose Socrates said yesterday.
He said the move was necessary to defend the euro against the speculators and he called on the European Union to take action, including regulating the credit rating agencies.
His country was downgraded by credit rating agency Standard and Poor’s during the week, together with Greece and Spain, despite the European Commission sending a warning shot across the bows of the agencies.
The downgrade was followed by a market attack against the euro project, he said.
“This attack, without foundation, is targeting the euro as a whole and the sovereign debt of several countries. Europe should take measures and go from words to actions,” he added.
Head of global economics at Societe General’s investment banking unit Michala Marcussen warned that the Greek problem needed to be fixed quickly to avert the danger of it spreading to other European economies and developing into a systemic crisis.
“There is a strong link between the sovereign debt issue and the banking sector and this is why it’s extremely important that the contagion factor is stemmed today,” he said.