Greek Leaders Debate Cuts, Debt Restructuring Looms

With Greece’s leaders close to a budget deal, European officials consider further debt reduction.

Greece’s political leaders have agreed on most of the austerity measures that are necessary to achieve €11.5 billion in savings between 2013 and 2014, Reuters reported on Sunday.

Prime Minister Antonis Samaras’ government last week managed to draw up a list of measures to achieve several billions in savings but the two left-wing parties in his coalition did not agree to them. Talks are due to resume on Monday.

Greek media have reported that among the austerity measures are possible layoffs of contractors in the public sector, a cap on pensions, cuts in welfare benefits, reductions in tax exemptions and lower salaries for public-sector workers. Pension and wage cuts, which would achieve some €1.5 billion in short-term deficit reduction, are said to be among the sticking points. The retirement age could be raised by one year to make up for the shortfall in savings.

Although Greece’s European creditor nations won’t have to decide before September whether or not to grant the latest tranche in its most recent, €130 billion bailout, resistance is mounting, especially in the northern countries of the eurozone, to continuing to prop up the debt stricken nation.

According to an Emnid poll published in the newspaper Bild am Sonntag, 71 percent of Germans want Greece to leave the currency union if it does not adhere to the conditions of the bailout. European Central Bank, European Commission and International Monetary Fund inspectors recently in Greece found the country once again behind schedule on commitments to rein in spending and liberalize the economy.

The Emnid poll also found that 51 percent of Germans now believe that their country would be better off outside the euro. In Finland, less than a third of voters believes that the euro will survive.

In February, when the €130 billion bailout package was promised to Greece, more than half of its debt was subject to “haircuts.” Banks and private investors were forced to write off billions in Greek bonds but government were exempt. Reuters cites unnamed European officials who suggest that plans to cut Greece’s debt by another €70 to €100 billion are being considered in Brussels. The European Central Bank and eurozone governments would have to take losses on the Greek bonds they currently hold.

That would undoubtedly fuel apprehension in countries like Finland, Germany and the Netherlands where a majority of voters is opposed to providing more financial aid for Greece altogether.