EU to sugar Greek pill with ‘nation-building’

Athens Parthenon Greece_Picnik.jpg

As the euro zone continues to dangle the carrot of further aid to a Greek economy hammered by debt, EU leaders on Thursday (23 June) endorsed a European Commission proposal to clean up the country's public sector using EU structural funds.

A proposal by the European Commission President José Manuel Barroso to overhaul Greece's public administration using structural funds won support from leaders at a late meeting in Brussels on Thursday.

But diplomatic sources castigated the move as something that looks like a "nation-building [exercise] for the third world".

While a further injection of EU/IMF aid to Greece is still out of reach as the country's parliament rows over a €28bn austerity package to be approved next week, EU leaders discussed ways to boost the Greek economy "on the ground", President Barroso said at a press conference last night.

Barroso already announced earlier this week that he wanted to "front-load" structural funds set aside for Greek regional projects to help the country rebuild its public sector.

Last night, the Commission president said he wanted to fund new IT systems for the country's beleaguered tax administration in particular.

He pointed out that the EU budget provides over €20 billion for Greece for the period 2007-2013: only a quarter of this has been spent until now. He added that from €675 million structural funds allocated to Greece for technical assistance, €420 million was still unused.

"Tonight we discussed how we can use these funds to maximise an immediate impact on growth in Greece," Barroso said at a press conference.

"This time they want to put across a positive image," said one diplomat, explaining that the Commission wanted to be the bearer of good news for once. 

Barroso announced that the Commission was ready to reduce the country's obligation to co-finance projects using structural funds from 50 to 15%.

"I have asked member states to work together with the Commission to bring together all the technical assistance available to help get this money as soon as possible," the president announced.

Greece: A third world country?

"You know what this is. This is nation-building, something that happens in the third world," commented one EU diplomat last night, saying that Barroso's initiative had taken many governments by surprise.

As part of the plan, the Commission will also call on member states to disburse experts from their governments to help Athens overhaul its public administration. Behind the scenes diplomats spoke of a complete lack of faith in Greece's ability to climb out of its own debt problems.

The Greek government is struggling to clean up its image after it not only bungled deficit statistics, uncovered by the Commission last year, but also after it was caught tweaking the terms of the austerity package to try and sell it to its national parliament.

Greece is clambering to secure support at home for an austerity package attached to a second bailout of €120 billion.

A meeting of experts from the International Monetary Fund, the European Commission and the European Central Bank also took place last night to find ways to plug a €5.5bn financing gap in the €28bn package.

Reports last night said the experts had come to an agreement to lower the threshold of taxable incomes from 12,000 to 8,000 per annum, to raise taxes on heating fuel and to impose a minimum tax on the self-employed, notorious for tax evasion.

The Greek parliament is due to discuss these additional measures and the entire package this morning and a vote is expected early next Tuesday (28 June).

Claire Davenport

Speaking after the summit on Friday (24 June), French President Nicolas Sarkozy said: "Europeans with the IMF will do what is necessary to ensure that, from the beginning of July, aid to Greece is disbursed and that a new aid plan is put in place."

Sarkozy admitted that details of private-sector involvement in the second Greek bailout still needed to be hammered out, saying this would be done by eurozone finance ministers at their meeting on 3 July.

The French president stressed that private-sector participation – by banks and insurance groups – would be "on a voluntary basis".

The Greens in the European Parliament were highly critical of the summit's outcome on Greece, saying EU heads of state had shown a "continued lack of political leadership".

"While Greece clearly needs to take action to reduce its public deficit, the recipe of piling austerity measures on top of austerity measures is making it ever more difficult for Greece to reduce its debt burden," said Greens/EFA co-president Rebecca Harms MEP (Germany).

"The reluctance to ensure private creditors properly participate in tackling the Greek debt crisis is prolonging the agony for the euro zone. Orderly debt restructuring is inevitable and continually kicking the can down the road is only compounding the ultimate costs for European taxpayers," she said.

In May 2010, the EU and the International Monetary Fund (IMF) extended a €110 billion loan to Greece to prevent the country from sinking into bankruptcy.

In the beginning of 2010, it was discovered that Greece was sitting on debt worth more than €215 billion, while its annual budget deficit was 13.6%.

A second bailout is now being discussed with the EU and the IMF as it appears that Greece will be unable to pay back its debt.

The new deal being discussed would total €120 billion, half coming from new EU/IMF aid and the other half mainly from privatisation of public companies such as the post, energy and telecoms.

However, the EU is still divided over the participation of private bondholders. Germany wants private investors to share part of the cost. The European Central Bank disagrees, warning that this would spread a new wave of contagion to other countries via commercial banks, which would see some of their assets depreciated to junk status.

  • 28 June 2011: Greek Parliament to vote on Papandreou government's austerity package.
  • 3 July 2011: Extraordinary Eurogroup meeting to decide on Greek aid.

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