IMF-Troika Draconian Demands Force Greece Towards Default?

London, UK - 18th September 2011, 23:00 GMT

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The Troika -- IMF, ECB and EC -- is demanding draconian new cuts in spending and public employment from Greece as a pre-condition for resuming aid talks, including:

Riots in Greece over Austerity Measures

1. 15 austerity measures Greece must take "here and now";

2. 50,000 public-sector to be placed in a special reserve pool at reduced pay immediately and then be dismissed one year later if no jobs become available;

3. Much deeper pension cuts to be implemented than had been planned;

4. Immediate pension cuts to farmers, seamen and telephone workers;

5. Further cutbacks in public sector wages effective from October 1st;

6. Abolition of thousands of jobs in 10 government bodies and the closure or merger of another 65 state organisations by December;

7. Consider retroactively -- and with immediate effect -- rescinding all public-sector hiring that took place in 2010 and 2011; and

8. Government must sack another 100,000 public sector workers over the next two years in exchange for the next tranche of bailout money.

The Troika will not be heading to Athens as planned on Monday, and instead will be doing a teleconference, until their demands are met. PM Papandreou has had to turn his plane around, while en-route to the US, in order to preside over emergency meetings in Athens to identify new savings.

Onus on Greece

1. There is a climate of panic in the ruling socialist Pasok party that has never been seen before according to an elder of the party. He says, "I doubt that Pasok will be able to adopt such measures and the prime minister might be forced to call early elections." Antonis Samaras, head of the conservative opposition New Democracy party, warned that the Pasok government is a 'captive' of its own mistaken policy and unable to attain its targets. He said, "the only solution to today's deadlock is elections!"

2. The onus is on Greece to prove that it is delivering the budget cuts and fiscal reforms mandated by the emergency bailout loans. However, it is becoming increasingly difficult to balance the budget as the economy implodes. Deeper-than-expected recession has cut into tax receipts, leaving a bigger fiscal gap.

3. Contrary to mythical folklore, at the weekend meeting of European finance ministers in Poland Eurozone finance ministers warned Greece that it may NOT receive the next euro 8 billion tranche under its bailout agreement in October, according to senior Greek officials.

4. Germany is increasingly indicating that Greece has an alternative to staying within the Eurozone. Wolfgang Schäuble, German finance minister, said over the weekend: “Membership in a monetary union is an opportunity, but also a heavy burden. Measures for alignment are very difficult. The Greeks must decide whether they want to bear this burden.”

5. Another round of cutbacks is likely to shift support away from the government. There are fears that further austerity measures could lead to more strikes and protests in Greece. Without fresh aid, Greece will now run out of money by mid-October. Although major bond redemptions are not due until December, lack of funds will make it difficult to pay for government services, public-sector wages and other commitments, thereby sowing mass discontent.

Conclusion

Given the circumstances, it is increasingly doubtful that Greece can meet the demands of the Troika. Will the markets finally understand that Greece has arrived at a financial cul-de-sac or are they still going to wait in vain for a miracle so that Greece can be perpetually rescued from imminent default?

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