ATHENS – With all eyes seemingly on the critical June 17 elections that could determine whether Greece leaves the Eurozone, another warning has come from one of Greece’s international lenders that more spending cuts are needed, and that a review of the country’s books – essential to determine whether fiscal targets for more loans to be released – won’t be done until after the polls.
The European Commission, representing the European Union, which is one arm of the EU-International Monetary Fund-European Central Bank (EU-IMF-ECB) Troika putting up $325 billion in two bailouts to prop up the country’s essentially-dead economy, said the next Greek government must pursue budget cuts with “determination” to be eligible for emergency aid, and that the next audit won’t happen until the end of June – by which time an additional $15 billion in cuts were supposed to have been made.
In the face of parties opposed to the austerity demands of the Troika likely to gain a majority vote in the next elections, the Troika has warned that any attempt to tinker with reforms could lead the money pipeline being shut off.
“Greece will therefore have to make substantial additional expenditure cuts in the coming months,” the Commission, the EU’s executive arm in Brussels, said in a report on May 30. “Comprehensive international financial assistance can continue to be provided only if policy implementation improves.” It added that, “The dangers for applying (the reforms) remain very high risk,” ramping up the pressure and tension already attached to the elections.
The commission and IMF review of Greece’s eligibility for the next disbursement of aid depends on the outcome of the June 17 election and is provisionally scheduled to take place in “late June/early July,” according to the report. “The determination of the Greek authorities to stick to the agreed policies will be tested in the coming months when deficit-reduction measures to close the large gap for 2013-2014 need to be identified,” the Commission said. “Implementation risks will remain very high. The success of the second program depends chiefly on Greece.”
Greece, which has struggled to meet targets for narrowing its budget deficit while receiving aid pledges of 240 billion euros ($299 billion) over the past two years, faces a cumulative fiscal gap in 2013-2014 of 5.5 percent of gross domestic product, according to the Commission. The report, part of an annual assessment of budget programs across the 27-nation EU, lists shortcomings by Greek authorities in enacting an economic overhaul first outlined when Greece got an initial $152 billion rescue loan package two years ago. The second bailout, for $173 billion, followed this year and came with a $135 billion debt write-down as part of the government imposing 74 percent losses on investors, locking Greece out of the borrowing markets and dependent on public aid, making it essentially a welfare state.
The Commission, which has repeatedly blistered Greece for failing to go after tax evaders costing the country more than $72 billion, is also lagging in tax collection, a problem growing worse by the day as many Greeks, suffering from pay cuts, tax hikes, slashed pensions and political uncertainty, have slowed or stopped paying taxes, causing revenue estimates to plunge. Greece was also criticized again, as it has been repeatedly, for failing to implement privatization programs to sell or lease state properties and put state enterprises in the hands of private companies.
The austerity program has helped Greece close its budget deficit from 15.1 percent three years ago – five times the maximum allowed by the Eurozone – to 9.1 percent last year, and is expected to fall to 7 percent this year, but at the same time it has worsened a deep recession now in its fifth year, created 21.7 percent unemployment and led to the closing of 1,000 stores a week, with restaurants shuttering and even major hotels closing.
Greece is caught in a contradiction, as most Greeks want to stay in the Eurozone but oppose the austerity measures that have worsened the lives of many. But if anti-austerity parties win, critics said Greece will completely collapse into anarchy and panic in the streets. While New Democracy won the May 6 elections, it got only 18.8 percent of the vote and is running neck-and-neck with the surprise second-place finisher, the Coalition of the Radical Left (SYRIZA) which wants Greece to renegotiate the bailout terms or renege on its payments, but keep Greece in the Eurozone, a mutually contradictory position.
(Sources: Bloomberg, Kathimerini, ProtoThema)