• The Financial Times – Greek cuts to be deeper than trailed
Planned cuts to Greece’s public expenditure will be even deeper than previously announced, the government has said ahead of a visit by the chairman of the eurogroup of finance ministers, as fears rise that the scale of the proposed reductions may test the ruling coalition’s unity. “The net savings on the expenditure side will be equal to €11.6bn, but total spending cuts will be higher, to the tune of €13.5bn [or 6.8 per cent of gross domestic product],” a senior finance ministry official told the Financial Times. Antonis Samaras, Greece’s prime minister, is hosting Jean-Claude Juncker on Wednesday and will travel to meet Angela Merkel, German chancellor, and her French counterpart François Hollande later in the week.The government has identified measures leading to cuts totalling about €15bn, but it believes that some of them will not be acceptable to the “troika” of international lenders, the official added. Amid domestic political concerns, the government has spoken publicly about spending cuts of €11.6bn – the net expenditure savings – while total cuts will actually be higher to compensate for resulting estimated losses in tax revenue and increased social security contributions as a deeper than expected recession continues to ravage the country.
• The Financial Times – Europe should choose whether it wants Greece in or out
For the third time in three years the Europeans’ stance on Greece is economically inconsistent. The first time was in 2009-2010 after then prime minister George Papandreou indicated that he would need to file for assistance from the International Monetary Fund. The European response was to reject the principle of IMF intervention while not offering an alternative to it. It took several months until an agreement was found, in May 2010, to combine European and IMF conditional support.The second time was in 2010-2011 when Greece’s solvency became the urgent issue at hand. Two camps emerged. One advocated swift debt restructuring, emphasising that Greece was a unique case and that markets could be convinced that no other European country would follow suit. The other one stressed the adverse spill-over effects of a default and favoured keeping Athens afloat through cheap loans. The compromise was to lend at penalty rates while letting markets expect that restructuring would perhaps come, but at a later date. Each of the two positions was internally consistent but the compromise was not. It took more than a year, until the second half of 2011, to recognise this contradiction.
• The Wall Street Journal – Europe Pressures Intensify
German Chancellor Angela Merkel faces one of the toughest choices of her career in the coming weeks: whether to risk the unraveling of the euro zone, or her government. After a summer lull, Greece is again Ms. Merkel’s biggest headache. The Greek government, struggling with depression-like conditions that have pushed the economy to the brink, is likely to need many billions of euros of additional aid to avoid bankruptcy. If Athens doesn’t get the money, it may be forced to leave the euro, an outcome that would undermine financial markets’ tenuous confidence in other vulnerable southern euro members, including Spain and Italy. An expansion of Greece’s €173 billion ($213.4 billion) bailout that was agreed to this spring faces adamant opposition in Ms. Merkel’s center-right coalition in Germany’s parliament, the Bundestag. Since the euro-zone crisis began in Greece in late 2009, critics have accused Ms. Merkel of playing for time, putting off difficult decisions until the last minute. Greece’s penury could force her hand, however: Athens could run out of cash by October unless European authorities and the International Monetary Fund release its next slices of international aid. But for the IMF especially, that requires the bailout math for coming years to add up.
• Bloomberg.com – Greece Asks for More Time as Juncker Meets Samaras in Athens
Greek Prime Minister Antonis Samaras called for “more time” to carry out policy changes to deal with his nation’s debt crisis before receiving Luxembourg Prime Minister Jean-Claude Juncker in Athens today. “All we want is a little more air to breathe to get the economy going and increase government revenue,” Samaras was quoted as saying in an interview with Germany’s Bild newspaper today. “More time doesn’t necessarily mean more money.” Limited concessions to Greece are possible as long as they are made within the framework of the second aid program for the over-indebted country, Norbert Barthle, the parliamentary budget spokesman for Chancellor Angela Merkel’s Christian Democratic Union, said yesterday. Almost three years after the crisis started in Greece, the country remains at the heart of the turmoil even as contagion spreads to Italy and Spain, prompting European Central Bank chief Mario Draghi to announce proposals to re-enter the bond market to help lower government borrowing costs. The euro rose to six-week highs yesterday against the U.S. dollar and yen before euro region leaders meet this week to discuss Greece’s fiscal adjustment program amid optimism the European debt crisis is being contained. French President Francois Hollande is due in Berlin tomorrow for talks on the crisis with Merkel.Samaras, whose government favors an extension of its fiscal adjustment program by two years, travels to Berlin and Paris on Aug. 24 and Aug. 25 to discuss the country’s deficit reduction efforts as part of terms to receive European help to tackle its debt crisis.