This article is part of our special report Jobs and Growth.
The European Commission yesterday (2 August) welcomed Greek moves to bring about structural reforms in its economy.
The ten priorities for structural reform announced yesterday by the Greek Minister of Development are a clear sign of the commitment of the Greek government to bring about the much-needed reform of the Greek economy, the EU executive said in a statement.
In the 10-point plan, the Greek government pledged to make the country friendlier towards businesses through measures such as cutting bureaucracy and expediting procedures.
This pledge came after Greece agreed internally to an additional €11.5 billion of budget cuts for the next two years, brokered by Prime Minister Antonis Samaras.
The exact details of the components of the cuts will be released later this month, but there is speculation that the Labour Ministry budget will be cut by €5 billion, and wages in public enterprises will be affected. State pensions are likely to be reduced once again, and there is talk of increasing the retirement age from 65 to 67.
Moves designed to avoid Grexit
This cutback was said to be a “necessary prerequisite for Greece to remain in the euro”, finance minister Yannis Stournaras said, as without the package of cuts for 2013 and 2014, Athens would lose access to the international loan program that is protecting it from bankruptcy. This in turn could force a Greek exit from the eurozone.
Inspectors from Greece's troika of creditors – the European Union, the International Monetary Fund and the ECB – are currently in Athens, monitoring the situation.
The cutbacks were negotiated by Samaras’ fragile ruling coalition. “The center-right New Democracy party will find it increasingly difficult to continue backing the austerity agenda without risking a collapse of the fragile coalition,” said Martin Koehring of the Economist Intelligence Unit.
Internal politics are set to become more strained, as PASOK leader Evangelos Venizelos grudgingly agreed to the new cutbacks.
The fast-vanishing cash reserves of the Greeks are causing headaches for the government, as they scramble to find ways to pay the wages and pensions of the large group of civil servants that they employ. In northern Greece, hundreds of hospital doctors are protesting against wage cuts already enforced.
Loan repayment due in August
Other measures being taken by Greece include the issuance of more Treasury bills in August, to fund its financing needs until the end of September, and repay its €3.2 billion worth of loans due in August.
Earlier plans of delaying the loan payments to the ECB, due on August 20, have been discarded, to avoid rattling the already unsettled markets. As a substitute measure, almost €2 billion extra T-bills will be printed, and the bank recapitalisation fund will be tapped.
The T-bills are expected to be bought by Greek banks, which will use the Emergency Liquidity Assistance from the Bank of Greece. The ELA is a line of credit that the European Central Bank provides to the Greek central bank, used by banks for liquidity needs.
Although the European Commission welcomed the restructuring plan, it stressed that reforms must be fully implemented, and comply with EU law, and in particular Single Market rules.
- 20 August 2012: Next loan repayment to ECB due from Greece