European Union and International Monetary Fund officials indicated Greece will get an 8 billion- euro ($11 billion) loan next month under a 110 billion-euro bailout, as European leaders move to reopen talks on a new package that may mean deeper writedowns on Greek debt.
The team of officials from the EU, IMF and European Central Bank said Greece has made "important progress" in fiscal consolidation, according to an e-mailed statement today upon completion of a review in Athens. The mission warned that more spending cuts would be needed in 2013 and 2014 to meet deficit targets.
"Continuing funding to Greece is the least worst option available," said Peter Dixon, an economist at Commerzbank AG in London. "We should be thankful that sanity is prevailing, for now at least."
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Greek Finance Minister Evangelos Venizelos said the government will meet commitments to international creditors to deepen pension and wage cuts, promising parliamentary approval for the draft 2012 budget, which was passed at the finance committee level yesterday, and budget measures including a new wage scale and eventual lay-offs for 30,000 state workers.
"What needs to be done on our side is to do what we said we will do by the end of October," Venizelos told Athens-based Mega TV in an interview early today. Venizelos has said the country has cash to operate till mid-November.
Bank Proposals
With European leaders due to meet on Oct. 23 to tackle the debt crisis, Venizelos said today that a law on new cuts to pensions, wages and jobs must be approved by Parliament before then. European Commission President Jose Barroso pledged to present proposals tomorrow on the recapitalization of European banks for discussion at the summit.
"The crisis has reached a systemic dimension," ECB President Jean-Claude Trichet told lawmakers in Brussels today. "Sovereign stress has moved from smaller economies to some of the larger countries. The crisis is systemic and must be tackled decisively."
European officials are toiling to meet an end-of-month deadline set by French President Nicolas Sarkozy to get to grips with the crisis, which has propelled Greece to the brink of default, shaken world markets and fueled speculation that the 17-nation currency might not survive in its current form.
Troika Report
The so-called troika of creditors to Greece will need about 10 days to prepare a report that will form the basis of EU talks on changes to a July 21 accord on future financing for Greece. Germany, Europe's dominant economy, is pushing for a bigger reduction in Greece's debt burden to forge a lasting solution to the debt crisis that has roiled markets and shaken confidence in the euro.
"Once the Eurogroup and the IMF's Executive Board have approved the conclusions of the fifth review, the next tranche of 8 billion euros will become available, most likely, in early November," the statement said.
Greece's debt load will climb to 172.7 percent of gross domestic product in 2012 as the economy contracts for a fifth year. Greek bank stocks slumped for a second day today amid talk of a deeper writedown of their holdings of government bonds. National Bank of Greece SA, the largest, lost almost 16 percent to 1.60 euros at 5:19 p.m. in Athens.
German Chancellor Angela Merkel said on Oct. 9 after meeting with Sarkozy that the Troika report will help determine the next steps. Belgian Prime Minister Yves Leterme said yesterday the crisis summit now scheduled for Oct. 23 should focus on boosting the 440 billion-euro rescue fund.
Summit Delayed
The search for a comprehensive fix led European leaders to push back the crisis summit by five days. Prime Minister George Papandreou plans to meet European Union President Herman Van Rompuy in Brussels on Oct. 13.
The report today said Greece would miss its 2011 deficit target as the country's economy contracted under the weight of Papandreou's austerity measures. The Greek government's 2012 budget now expects the deficit to be 8.5 percent of GDP this year, or 18.7 billion euros, and decline to 14.9 billion euros next year.
More work will be needed in 2013 and 2014, the troika said, underlining that revenue assumptions are "ambitious" and that Greece needed to focus on the spending side.
Papandreou risks a replay of social and political unrest that almost brought down his government in June when he was forced to push through a 78 billion-euro package of budget cuts and state asset sales before receiving a fifth loan payment under the May 2010 bailout.
Austerity Measures
The latest chapter of austerity measures, announced last month, will impose a property tax on all homes owned while public-sector workers will see their salaries cut by a further 20 percent on average and pensions reduced by 4 percent. The plans also include moving 30,000 state workers into a labor reserve system that will mean reduced pay and eventual dismissal. The economy is now forecast to shrink 5.5 percent this year and 2.5 percent next year, according to the budget.
Greece's inflation rate rose in September for the first time in six months after restaurants started charging a higher sales tax, part of the government's June package of budget measures. The inflation rate using a harmonized EU method, increased to 2.9 percent from 1.4 percent in August, the first annual increase since March, the Hellenic Statistical Authority said.
Garbage is piling up on city streets as local government workers strike over the measures and protesters cut off access to government offices and Agricultural Bank of Greece SA which is to be sold. Greece's biggest union groups will hold a 48-hour strike from Oct. 18, state-run NET Radio reported yesterday.
Bloomberg News
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