Greece agrees to more spending cuts and to sell off €50bn of state assets
The agreement was reached after more than a month of discussions with the EU, IMF and European Central Bank “troika” in Athens, where they examined how much progress Greece was making on its programme to get its finances back in order.
Having missed several deadlines, the IMF warned it could not contribute its one-third share to the next tranche of €12bn due to be paid out to Greece this month as the fifth installment in its €110bn rescue package. IMF rules state it can only lend to countries that will not default in the next 12 months.
After meeting Greek premier George Papandreou yesterday, European Council president Jean-Claude Juncker said the final deal would “include private sector agreements on a voluntary basis”.
Mr Papandreou agreed to make an additional €6.4bn worth of savings this year, another €22bn over the next four years and to sell off state-owned assets such as ports, telecoms and electricity companies and banks by 2015.
It is hoped the deal will stave off what threatened to be the eurozone’s first default, but the credit ratings agency Moody’s downgraded the country to Caa1 earlier this week as they believe the probability of a default is 50%..
Given the country’s failure to make many structural changes demanded of it already, the troika said it will give Greece reinforced technical assistance in tax and privatisation. Tax take fell short of targets, partly due to officials going on strike, and the recession biting harder than predicted, depressing incomes and spending further.
There has been huge public outcry over privatisation, with government politicians also divided.
It is hoped that having a professionally and independently managed privatisation agency in charge of sales and quarterly targets will help.
But many fear it will only heighten tensions, with others predicting the government will collapse in the coming months.
European Economics Commissioner Olli Rehn said: “The government’s commitment to significantly accelerate the privatisation plan, a cornerstone of the recovery programme, is particularly important.”
He described the latest commitment by the Greek authorities as “crucial decisions at a critical moment to safeguard financial stability and economic recovery in Europe”, and asked all political forces to put aside their domestic disputes and endorse the programme.
With €27bn of bonds coming up for payment next year and the acknowledgement that the country will not be in a position to return to the market, Greece will need to endorse the restructured deal, to unlock additional loans of €60bn in 2012.
The Greek parliament is expected to debate the deal over the next few days, while the IMF board and eurozone finance ministers will approve the new payments shortly.
The Troika report said significant progress, particularly in the area of fiscal consolidation, had been achieved during the past year and expects the economy to stabilise at the turn of the year.
