The future of Greece rests on a phone call
'Make-or-break' conversation between finance minister, EU and IMF will determine next measures to prevent default
Europe's debt crisis has intensified after Greece's embattled government said the country's financial future would rest on a make-or-break conference call with EU and IMF officials on Monday.
Signalling that the 20-month saga had reached crunch point, Athens' finance minister prepared the austerity-weary nation for further belt-tightening, saying the time had come for "decisive" action to avoid a Greek default.
"There is great volatility in the markets," Evangelos Venizelos said after emerging from crisis cabinet talks. "If we want to avoid default, to stabilise the situation, to remain in the eurozone ... we must take big strategic decisions.
"Measures must be specified," he added, referring to reforms outlined in a contentious budget plan passed in July. "After tomorrow's talks with the troika [of representatives from the EU, ECB and IMF] we will spell out the measures."
With the threat of bankruptcy looming, Greece was told in no uncertain terms over the weekend that a critical ¤8bn rescue loan would not be released next month unless it proved that it had bitten the bullet with reforms.
The funds would be the sixth instalment of cash Athens has received since being bailed out to the tune of €110bn in May 2010.
But reading the riot act to Greece as never before, EU finance ministers meeting in Poland insisted that without "concrete facts and figures" to show that Athens was intent on bringing its budget deficit in line, the aid would not be forthcoming.
Without the cash injection, the ruling socialists will be unable to cover state wages and pensions in October.
"The atmosphere was far from diplomatic," said one Greek insider. "They don't seem to have faith in us. The choice is clear. Either we go down or show real determination, not words but deeds."
For George Papandreou's administration, that determination is likely to mean a massive reduction of the bloated civil service – previously unthinkable in a nation reared on the notion of jobs for life – on top of austerity measures that have seen pensions and wages decline dramatically.
The authoritative Sunday Vima, citing an internal government email, said the country's international creditors had not only demanded that 100,000 public sector workers be laid off by 2015 but also that the pensions of farmers, sailors and employees with the telecommunication organisation OTE be cut immediately. Around 50,000 state employees would have to be placed on reduced pay in a special labour reserve immediately. With the atmosphere becoming ever more explosive, such measures would almost certainly exacerbate social unrest.
"Everyone wants a smaller state," said Venizelos. "The 2012 budget is now being put together. And the central direction for 2012 is to reduce expenditures."
Although senior ministers have conceded that widespread resistance has slowed reforms – not least the privatisation of state assets and deregulation of professions – the government has argued that a worse than expected recession has also slowed the pace of change.
Venizelos recently said the Greek economy would contract for a fourth consecutive year in 2012, partly because of the tough cuts. The budget deficit, originally expected to be around 7.4% of GDP by year's end, is now projected to be nearer 10%.
In an effort to meet a shortfall that is ¤2bn and rising, the government unveiled a surprise property tax last week, but with the backlash immediate and likely to grow, EU ministers indicated that they did not have "great faith" in the measure.
The lack of political consensus over the austerity measures has further eroded Greece's credibility. The main conservative opposition leader, Antonis Samaras, is calling for snap elections and for the loan conditions to be renegotiated.
"Our problem is to ensure that we get the sixth payment and each future payment with the best possible terms as we can't keep having a repeat of the same scenario [before the disbursement of each loan]," Venizelos said in Poland. "The situation is serious in the sense that we need to take serious, definitive and complete decisions."
Papandreou highlighted the sense of urgency by cancelling a trip to the US, where he was to address the UN and meet the IMF managing director, Christine Lagarde.