THE STRUGGLE to keep the ailing Greek economy afloat took a further turn for the worse as the EU-IMF “troika” abruptly suspended talks in Athens on the release of the next round of rescue aid to the country.
A team of troika inspectors unexpectedly left Greece yesterday after the emergence of divisions with the government over the execution of reforms agreed in its first international bailout.
With the release of each round of bailout loans contingent on the delivery of agreed reforms, the latest breakdown raises fresh questions about the government’s capacity to implement the rescue plan.
The dispute comes as Greece tries to persuade private creditors to bear investment losses as a condition of its second bailout. The terms of the second rescue were finalised in July after months of dispute which intensified the sovereign debt crisis.
With Italy and Spain under pressure, the latest turmoil in Athens unsettled bond markets yet again. Greek two-year bond yields soared to a new record of more than 46 per cent and Italian and Spanish borrowing costs also rose.
European Central Bank chief Jean-Claude Trichet urged the Italian government, which is trying to rework its new austerity package, to fully confirm and implement the plan.
The troika – comprising the EU Commission, the ECB and the IMF – sent an inspection team to Athens a fortnight ago for the fifth quarterly review of the first Greek rescue. Top officials from the three institutions joined talks with Greek ministers on Monday but the deadlock persists.
“At a certain point you reach the conclusion that there is no point in having new meetings every day – and you leave the Greeks a chance to do their homework,” said a source close the troika.
At issue is the Greek government’s failure to deliver promised reforms to public sector pay and its tax collection system. The troika is also unhappy with the government’s failure to liberalise a number of professions.
The troika and Athens are at odds over the extent to which these questions are hampering the effort to tackle the Greek deficit, now set to be larger than forecast.
Greece blames a quickening of recession but the troika says promised reforms would ease pressure on the economy.
“They’re not happy,” said a Greek government source in reference to the troika.
“On the other hand I think they can see that we are at the very limit here and you can’t just turn something on or off, but there is nothing that could put in question the continuation of the meetings.”
Although the IMF had hoped to wrap up the talks next Monday, the troika said yesterday that its inspectors now expected to return to Greece by the middle of the month. It wants Athens to complete technical work by then and to continue talks on policies needed to complete the review.
“The mission has made good progress, but has temporarily left Athens to allow the authorities to complete technical work, among other things, related to the 2012 budget and growth-enhancing structural reforms,” the troika said.
