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EU Says Greece Needs Still More Austerity

Greeks - those who still have jobs - may have to put some money aside as more austerity measures are looming

ATHENS – The era of austerity will have to continue in Greece, a European Commission report has said, adding that the new government after upcoming elections will have to make further cuts in spending in 2013-14 of 5.5 percent of the Gross Domestic Product, or as much as $16.5 billion to meet targets agreed upon with international lenders to keep bailouts coming.
The Compliance Report by the European Union’s executive gave a progress report on what it said were critical reforms Greece must implement despite repeated foot-dragging but recommended new loan installments as part of a second rescue package of $172 billion be released as soon as possible. Debt-choked Greece is surviving on a first bailout of $152 billion from the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) Troika.
The report said a package of savings adopted by Greece in early 2012 worth 1.5 percent of GDP should allow Athens to meet the target of bringing the primary deficit down to 1 percent this year. “However, current projections reveal large fiscal gaps in 2013-14,” the Commission report said, adding that the shortfall for the two years totaled 5.5 percent. “Therefore, substantial additional expenditure cuts will have to be announced and adopted by Greece in the coming months, in particular when Greece updates its medium-term budget in May 2012,” the report said.
That’s bad news for whoever wins the elections due to be held late in April or early May to replace a temporary hybrid government of PASOK Socialists and New Democracy Conservatives being overseen by interim Prime Minister Lucas Papademos, a former ECB Vice-President. The bailouts came with required pay cuts, tax hikes, slashed pensions and the pending firing of 150,000 public workers over the next three years, conditions that have sparked two years of protests, strikes and riots to no avail. The austerity measures have created a deep recession of 21 percent unemployment – some 51.5 percent for those under 25 – and led to the closing of more than 111,000 businesses. New Democracy leader Antonis Samaras, who is leading in the polls, and Finance Minister Evangelos Venizelos, who is running unopposed to take over the leadership of the beleaguered PASOK Socialists slumping in the polls, have agreed to the austerity measures already underway.
The report said that in preparation for the new cuts the government was reviewing public spending programs, focusing on savings in social transfers, defense and the restructuring of central and local administration. There would be more job cuts in the public sector as well as even deeper slashes in pharmaceutical spending and operational spending of hospitals as well as welfare cash benefits.
“The continuation of the very comprehensive international financial assistance can only be expected if policy implementation improves,” the Commission report said. “The determination of the Greek authorities to stick to the agreed policies will be tested already in the coming months when the deficit-reducing measures to close the large gap for 2013-14 need to be identified,” it said.
To keep the loans coming, Greece has to achieve a primary surplus of 1.8 percent in 2013 and 4.5 percent in 2014. “The current policies are not sufficient to bring the public accounts to these targets. The government will have to identify this amount (5.5 percent of GDP) of measures by June 2012 and adopt them in the 2013 and 2014 budgets to reach the targets,” the report said.
A Troika analysis found that after a write-down in $134 billion in Greece’s debt as part of a so-called Private Sector Involvement (PSI) deal forcing investors to take losses of as much as 74 percent over three years, Greek debt could fall to 116.5 percent of GDP in 2020 and below 90 percent in 2030. “However, there are significant risks that debt declines may be interrupted or even reversed by shocks. Under an alternative, less favorable scenario, the debt ratio in 2020 would still be above 145 percent of GDP,” the document said. “Moreover, given the high prospective level and share of senior debt, the prospects for Greece to be able to return to the market at the end of the program are uncertain,” it said, Reuters reported.

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