Barroso visits Athens amid ‘Grexit’ speculation

Athens Greece.jpg

European Commission President José  Manuel Barroso is scheduled to meet Greek Prime Minister Antonis Samaras in Athens today (26 July) amid renewed speculation that the country could be forced to leave the eurozone.

EU Commission spokesman Alejandro Ulzurrun de Asanza y Muñoz called the visit a “regular” one, although Barroso clearly had an important messages to deliver.

Asked what the messages would be, he said: "Mr. Samaras and President Barroso … will discuss the overall situation in Europe and obviously particularly focusing on Greece".

Barroso last visited Athens in June 2009. Since then, 13 inspections of the Troika (EU, International Monetary Fund and European Central Bank) took place to deal with the challenge of the Greek crisis.

Barroso's trip will coincide with another Troika visit, which is due to assess whether Athens deserves to receive more payments under its €130-billion rescue programme. Following a difficult period of repeated elections, reforms in Greece have been delayed.

‘Nothing has been done for months’

"The situation just goes from bad to worse, and with it the debt ratio," one unnamed EU official said, quoted by Reuters, adding: "Nothing has been done in Greece for the past three or four months."

Greece has completed only about a third of some 300 specific benchmarks for fiscal and structural reforms that were detailed in the second bailout, the Financial Times reported.

Without sufficient progress, Greece may not receive the final part of its bailout worth €31.5 billion and could be unable to pay its civil servants.

The Commission said it didn't expect a decision on giving Greece the next chunk of cash before September.

The Troika is also likely to conclude that Athens cannot repay what it owes, making a further debt restructuring necessary.

A new ‘haircut’ could this time hit the public sector. In theory, the ECB and eurozone governments would likely have to take a hit on some of the estimated €200 billion of Greek government debt they own if Athens is to be put back on a sustainable footing.

But in practice, there is no willingness among member states or the ECB to take such dramatic action at this stage.

German Finance Minister Wolfgang Schäuble was recently quoted as talking about a possible Greek exit from the eurozone, a statement which he later denied. Greece is being asked by the Troika to conduct a wide-ranging privatisation programme, and such statements are not conducive to encourage prospective buyers.

Austerity bites

Samaras said Greece's economy could contract by more than 7% this year, pushing debt-cutting targets further out of reach, but he pledged to stay the course.

"There are certainly delays in this year's agreed programme, and we must quickly catch up," Samaras told party colleagues. "Let's not kid ourselves, there is still big waste in the public sector, and it must stop."

The Greek daily Kathimerini reported that the leaders of the three parties in Greece’s coalition government (see background) face today the unhappy task of approving €11.5 billion in spending cuts over the next two years in the hope that this will help convince the country’s lenders to release further bailout funding for Athens.

Samaras is due to meet PASOK chief Evangelos Venizelos and Democratic Left leader Fotis Kouvelis to approve the savings. It is expected that apart from cuts in spending in various government departments, the measures will also include considerable reductions to state pensions, which will be one of the most politically sensitive issues for the coalition to handle.

During the campaign before the 17 June elections, Samaras said he would seek renegotiations of bailout deals with international lenders – but after being elected said he wouldn’t.

The Wall Street Journal quoted European Commission Vice President Joaquín Almunia saying that EU countries should stand ready to support Greece, by giving it “more cash”.

Background

New Democracy, the centre-right party that won the general election in Greece last June, formed a coalition government with the third-placed socialist PASOK.

New Democracy won 29.7% of the vote, ahead of the leftist Syriza with 27%. Both New Democracy and PASOK are part of the “pro-bailout” camp.

New Democracy and PASOK alternated in power from the fall of military rule in 1974 until last year, when Greece's economic crisis forced the

rivals to share power in a national unity government tasked with rescuing the country from bankruptcy.

Many Greeks hold both parties responsible for the nation's near bankruptcy, which forced it to take bailouts from the European Union and IMF in 2010 and again this year.

Further Reading

Subscribe to our newsletters

Subscribe