GREEK PRIME minister George Papandreou is coming under fresh pressure from Europe to ensure his beleaguered government delivers new austerity measures to trigger the release of an €8 billion bailout loan.
Amid mounting international anxiety about his country’s precarious financial position, Mr Papandreou will speak by teleconference this evening with German chancellor Angela Merkel and French president Nicolas Sarkozy.
In a sign that global leaders are losing patience at the response to the debt debacle, US president Barack Obama intervened yesterday to say euro zone leaders must show markets they were taking responsibility for the crisis. Weakness in the global economy would persist for as long as it is not resolved, he told a group of Spanish journalists.
“In the end, the big countries in Europe, the leaders in Europe must meet and take a decision on how to co-ordinate monetary integration with more effective co-ordinated fiscal policy.”
In a move that is without precedent, US treasury secretary Timothy Geithner will attend a meeting of EU finance ministers in Poland on Friday as they try again to come to grips with the emergency.
High-level sources briefed on Europe’s engagement with Greece cite renewed concern that the intensified austerity effort may yet lead to the collapse of Mr Papandreou’s government. This reflects the re-emergence of divisions within his socialist Pasok party, in which there is deep disquiet about the pace and extent of the cutbacks and tax hikes required to execute the bailout programme.
Greece’s next round of rescue aid hangs in the balance due to a dispute over its failure to achieve the targets set out in the plan.
Mr Papandreou’s talks with the German and French leaders come against the backdrop of local media reports that his government is trying to hoard cash.
The Kathimerini daily reported yesterday that the administration has adopted a partial freeze on payments, excluding pensions and salaries. This follows claims it will run out of cash next month if it does not receive the new loans.
Talks with the EU-IMF “troika” broke down over a push for new measures to ensure its fiscal targets are met.
While the government unveiled a new property tax on Sunday, doubt remains over its ability to deliver the required level of revenue from the initiative.
But Dr Merkel moved yesterday to damp down speculation that Greece may soon be forced into a sovereign default, something that would have serious implications for Ireland. In a radio interview, the chancellor said Europe was doing everything in its power to avoid a Greek default.
After her junior coalition partner said there should be “no taboos” in the debate over Greece, she pressed politicians in her own administration to weigh their words carefully to avoid fomenting turmoil on financial markets.
Dr Merkel, who warned of a contagion risk to other countries from any default, said Greece was taking the right steps to get its next payment. An “uncontrolled insolvency” would disrupt markets and the euro region would have no system for an “orderly” insolvency until a permanent new bailout fund is set up in 2013. “The top priority is to avoid an uncontrolled insolvency, because that wouldn’t just hit Greece and the danger that it hits everyone, or at least a number of other countries, is very big,” she said.
However, persistent reports that Berlin is making contingency plans for such a development are fuelling tumult on markets and weighing heavily on French banks, which have a €41.3 billion exposure to Greek sovereign debt. Although global stocks and the euro regained some ground yesterday, Italy came under renewed strain as investors questioned whether its new austerity plan can deliver the required recovery in its public finances.
Sarkozy feels heat as crisis spirals out of control; Fallout of Greek default could put Lehman in ha’penny place: page 18