21st Sep 2020

Finance ministers play hardball with Greece

  • Greece's debt problems have raised a question mark over the stability of the eurozone (Photo: Aster-oid)

Euro area finance ministers played hardball with Greece on Monday (15 February), stressing additional austerity measures may be needed rather than detailing bail-out plans as hoped for by Athens.

"We did not want to go public today with the measures we are putting in place," Luxembourgish Prime Minister and eurozone chief Jean-Claude Juncker said after a meeting of euro area finance ministers, in reference to bail-out plans.

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At an informal summit in Brussels last Thursday, euro area leaders said they would take "determined and co-ordinated action if needed to safeguard financial stability in the euro area as a whole" - diplomatic language indicating Greece would not be left to default on its debt obligations.

But an unwillingness to spell out further details suggests EU members view financial transfers as a matter of last resort, with Germany particularly reluctant to set a new precedent that could see other weak economies seek aid in the future.

Earlier in the day, Greek finance minister George Papaconstantinou called on his EU colleagues to provide greater details of a potential bail-out.

"My guess is that what will stop markets attacking Greece at the moment is a further, more explicit message that makes operational what was decided last Thursday [by EU leaders]," he told a conference in Brussels.

Austerity measures

Instead, the meeting of finance ministers pointed to the possible need for further austerity measures if Greece is to reduce its budget deficit by four percent this year to 8.7 percent of GDP, as outlined last month.

In a detailed "stability programme" report to the European Commission, Athens pledged to slash its deficit from last year's 12.7 percent of GDP to below three percent by 2012, but some analysts question whether the current list of actions will be enough to reach these targets.

The European Central Bank recently made a strong push for additional measures, but finance ministers on Monday opted to wait until a mid-March assessment of Greece's progress before making the call.

Mr Juncker said Greece "should focus on expenditure cuts, for example cutting current capital expenditure," but he also said "revenue-increasing measures" such as tax rises would be necessary.

The EU's new economy commissioner Olli Rehn also stressed further steps were likely to be necessary. "Our view is that risks related to the implementation and macro-economy and markets are materialising, and therefore there is a clear case for additional measures," he said.

Polls show Greece's centre-left Pasok administration still enjoys widespread support having been swept to power in a landslide victory last October, but unions took to the streets earlier this month to protest against government plans for public sector pay cuts, retirement age changes and pension-sector reforms.

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