Wednesday

30th Nov 2022

ECB and Greece tussle over extra austerity measures

  • ECB chief, Jean-Claude Trichet. The ECB is pushing for additional austerity measures in Greece (Photo: Swedish Presidency)

The European Central Bank (ECB) wants Greece to implement additional austerity measures to ensure the country's budget deficit declines by the promised four percent this year, but Athens is putting up resistance.

EU finance ministers meeting in Brussels on Monday and Tuesday (15-16 February) are set to adopt European Commission recommendations for Greece and to discuss the ECB suggestions, outlined in a paper seen by German Daily Handelsblatt.

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The document urges Greece's Socialist government to make bigger budget cuts, increase Value Added Tax for consumers and impose higher taxes on luxury goods and energy.

Athens outlined plans to tackle its deficit and debt problems last month and has said that a decision on whether further measures are needed should not be taken until after a first international monitoring visit, due to take place mid-March.

"It makes no sense to rush into additional measures until they are seen to be necessary," said a senior Greek official, reports the Financial Times.

EU, ECB and International Monetary Fund officials will all participate in the forensic trip to scrutinise Greece's finances next month. EU finance ministers are likely to wait until the results of the visit before deciding on whether extra measures are needed, Handelsblatt says.

Some investors doubt the Greek programme will be enough to restore public finances to good health, however. Speaking on French television on Sunday night, ECB president Jean-Claude Trichet called on Greece "to take the extra measures that will be necessary to make credible their turnaround plan."

Germany has also recently pushed for Athens to make additional commitments in return for eurozone aid.

Greece's budget deficit hit 12.7 percent of GDP last year, with Athens promising to return its accounts to below the three percent of GDP allowed under EU rules by 2012.

At an informal European summit last Thursday, EU leaders said Greece would not be allowed to default on its debt obligations, a public declaration that a bailout would be available for the embattled Aegean state, if needed.

The exact mechanisms of how the bailout could work are not on the agenda of EU finance minister meetings this week, reports Reuters.

ECB officials are keen to preserve the eurozone's "no bail-out" clause, but Mr Trichet's presence at last week's summit indicates his tacit support.

A new poll published in Germany on Sunday shows a majority of Germans want debt-ridden Greece to be thrown out of the eurozone if necessary and more than two-thirds oppose handing Athens billions of euros in credit.

German chancellor Angela Merkel also faces opposition to aid for Greece from within her ruling centre-right coalition.

For his part, Greek Prime Minister George Papandreou is having to contend with strikes and greater social unrest as he prepares to implement the package of spending cuts and tax increases.

Recent polls show the Socialist leader enjoys high approval ratings however, with a majority of Greeks believing the austerity measures are necessary and overdue.

Mr Papandreou has also not refrained from criticising the EU. In a statement destined for domestic trade unionists but also some of Europe's centre-right governments, Mr Papandreou claimed Greece was being used as a "laboratory animal" in a test of strength between the eurozone and financial markets.

"The EU's own credibility is being tested," he warned. "It must correct the mistakes it made over Greece, so it will be especially strict with us," he said the day after last week's EU summit.

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