Greece’s new coalition government seeks an extension to the deadline for it to reduce its budget shortfall by two years and has ruled out deeper public-sector job and pension cuts.
The German finance minister on Sunday expressed frustration with Greece’s slow progress toward fiscal consolidation and market reforms, critical conditions for it to continue receiving bailout funds.
Wolfgang Schäuble argued on German television that the Greek debt crisis would not be solved by throwing more money at the problem. “The decisive thing is to credibly fight the causes of the crisis,” he declared. “There’s no other way to do this.”
The Greek ruling parties want to stay in the euro and therefore adhere to the terms of its latest €130 billion bailout. Without European and international financial support, the country, unable to borrow at the affordable rate in financial markets, could face bankruptcy within weeks.
Under the present agreement, Greece has to reduce its deficit to 2.1 percent of gross domestic product in 2014 and take another 150,000 civil servants off the payroll by the next year.
Further budget cuts and layoffs would be hugely unpopular in the country which has been subjected to austerity measures and seen a spiral of negative growth since the financial crisis began in 2008. The Greek economy shrank about 6 percent last year and is projected to contact by another 4 percent this year.
Schäuble nonetheless insisted that “Greece hasn’t tried enough so far, that has to be said quite clearly.” He added that “no one on Earth who has followed this issue would think that Greece has fulfilled what it has promised.”
The Balkan nation received €110 billion in financial assistance in 2010 and was promised a second bailout worth €130 billion in February. More than half of Greece’s €350 billion debt was subject to “haircuts” at the time. Banks and private investors were forced to write off billions in Greek bonds.
The new Greek government, which is composed of the mainstream conservative and socialist parties that have ruled Greece in alternation since democracy was restored in 1974 as well as the smaller Democratic Left, also seeks to extend unemployment benefits and reduce the catering sales tax from 23 to 13 percent. Employers and unions would be allowed to set a private-sector minimum wage.
Among the three Southern European countries that have had to request financial aid from their eurozone peers, Greece’s monthly minimum wage of €876 is the highest compared to €565 in Portugal and €748 in Spain. Workers in these countries also enjoy a thirteenth and a fourteenth month of pay. Yet Greek workers are less productive than their Spanish counterparts although, at least before their country was engulfed in its debt crisis, they outperformed the Portuguese.
Structural entitlement and labor market reforms that should enhance Greek competitiveness in the medium to long term are stalled. A comprehensive privatization effort has yet to be initiated. Business confidence is fading. More than one out of five Greek workers is unemployed. Youth unemployment has topped 50 percent.