Papademos Says Greece Must Cut Another $16 Billion

Papademos Says Greece Must Cut Another $16 Billion

Greece's interim Prime Minister Lucas Papademos isn't feeling too optimistic about the country's still faltering economy

ATHENS – After repeatedly promising Greeks that they would face no more spending cuts, interim Prime Minister Lucas Papademos said on March 30 that the country needs to find another $16 billion in savings by 2014 to meet harsh demands from international lenders. Papademos, whose shaky hybrid government of PASOK Socialists and their bitter rival New Democracy Conservatives are at each other’s throats ahead of May 6 elections to choose the country’s next leader, said even several rounds of pay cuts, tax hikes, slashed pensions, a reduction in the minimum wage and the planned firing of 150,000 workers over the next three years haven’t stopped Greece’s economic bloodletting.

He told Parliament that, “Every effort must be made to limit wasteful spending and not to further burden salaries of civil servants,” but that he foresees another $16 billion in cuts must be made. Greece is surviving on a first bailout of $152 billion in loans from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) and an upcoming second rescue package of $172 billion, but decades of profligate spending and packing public payrolls with unneeded political hires in return for votes has taken its toll, as has the failure to collect from tax evaders who owe the country more than $72 billion. “What’s important is to implement the policies included in the (bailout) program in an effective and timely manner,” he said. “If this doesn’t happen, nobody can expect its anticipated results to materialize.”

Two years of austerity have brought Greece’s deficit down from 15.4 percent to around 10 percent but the government is trying to cut it to 3 percent – the ceiling allowed by the Eurozone of countries using the euro as a currency – by 2014, a mark analysts said will be impossible to meet, even though Greece has also imposed losses of 74 percent on private investors to write down $134 billion in debt. Papademos said that has had a bad side effect: he doesn’t know when, or if, Greece will be able to borrow from the markets again because investors feel burned, and the country may have to get a third bailout from its public lenders, and even force the ECB to take losses on its holdings of Greek bonds. Speaking to Italian daily Il Sole 24 Ore, Papademos raised the possibility of a third bailout but said he would do everything to avoid it.

“It cannot be excluded that some financial support may be necessary, but we must try hard to avoid such an outcome,” said Papademos, who came to power last year as the head of a caretaker coalition government when former Prime Minister George Papandreou resigned in the face of constant protests, riots and strikes against austerity measures. “Greece will do everything possible to make a third adjustment program unnecessary… having said that, markets may not be accessible by Greece even if it has implemented fully all measures agreed upon,” he said. It was the first time Papademos publicly told Greeks of the lingering risk the country faces, although Troika officials have warned it could happen.

That pessimism could give a boost to anti-bailout parties who are gaining in the polls and threatening the 35-year hegemony of the two major parties. Polls show New Democracy leading, but with only 20 percent, and PASOK locked in tight races with the Communists and Democratic Left, raising the growing possibility of another coalition government and as many as eight parties in a fractured 300-member Parliament. “Greece will do everything possible to make a third adjustment programme unnecessary,” Papademos said, according to a transcript of his remarks.

With its economy in the fifth year of deep recession, skepticism about the effectiveness of government reform measures and deep public resistance to further doses of austerity, there have been widespread expectations that more aid will be needed. Papademos repeated that Greece would do everything necessary to remain in the Eurozone, saying the consequences of an exit would be “devastating.” He added:  “More than 70 percent of the Greek people support the country’s continuing participation in the euro area,” he told the Italian business newspaper. “They realize, despite the sacrifices made, that the long-term benefits from remaining in the Eurozone outweigh the short-term costs.”