GREECE CAME under intensive pressure from its bailout lenders to bring forward a drastic round of public sector job cuts as US president Barack Obama held talks on Europe’s expanding debt crisis with German chancellor Angela Merkel.
In a statement late last night, the White House said Mr Obama and Dr Merkel agreed that “concerted action” would be needed in the coming months to address the situation in the euro zone.
Concerns increased late last night when Italy's credit rating was cut by one level to A, from A+ by Standard and Poor's agency, which said the country's outlook remains "negative". Italy has Europe's second highest debt load.
"In our view, Italy's economic growth prospects are weakening and we expect that Italy's fragile governing coalition and policy differences within parliament will continue to limit the government's ability to respond decisively to domestic and external macroeconomic challenges," the agency said.
The conversation between Mr Obama and Ms Merkel, which reflects growing global concern about the debacle, came only three days after US treasury secretary Timothy Geithner urged European finance ministers to avert “catastrophe” by stepping up the battle against the debt crisis.
As global leaders gather in New York this week for the United Nations general assembly, Mr Obama is also scheduled to hold talks on the debt debacle and the global economy with French president Nicolas Sarkozy and British prime minister David Cameron.
A highly-anticipated teleconference between the EU-IMF “troika” and the Greek government on the release of a crucial €8 billion loan ended inconclusively last night. Further talks are scheduled for this evening.
Greek finance ministry sources said the country was close an agreement to release its next loan but a number of questions still remain to be settled. “A productive and substantive discussion took place,” the ministry said in a statement.
“Tomorrow morning, the teams of technical experts already in Athens will further elaborate on some data and the conference call will be repeated tomorrow at the same time,” it added.
Prime minister George Papandreou has been told by his international sponsors to accelerate a contentious plan to cut 100,000 public sector jobs and rely less on tax increases, something which is likely to put his administration under further internal pressure.
With Greece warning that it could run out of money next month, last night’s teleconference came amid renewed anxiety in markets that the country faces default within weeks if it fails to secure the €8 billion loan.
The uncertainty over the payment has spooked markets and talk that a default is in prospect, consistently denied by the European authorities, has led to concern in Dublin that Ireland’s recovery effort could suffer “indirect” damage as a result.
The euro lost ground against the US dollar yesterday and Italian and Spanish 10-year bond yields rose further above the 5 per cent threshold, which triggered an emergency bond-buying campaign by the European Central Bank six weeks ago.
However, US stocks staged a late comeback last night as reports surfaced about a possible deal to break three weeks of deadlock in the talks.
At issue right now is whether the conditions were right for the troika to resume a suspended mission to Athens with a view to clearing the release of the country’s next tranche of rescue aid.
The latest talks follow blunt criticism from Mr Venizelos of the international community’s response to the crisis. Saying Greece would have to avoid default to stop itself being blackmailed and humiliated, he said the government would have to follow through with the austerity plan.
“We should not be the scapegoat or the easy excuse that will be used by European and international institutions in order to hide their own lack of competence to manage the crisis and give a definitive and complete answer to the attacks against euro, the world’s strongest currency.”
In an effort last Friday to escalate pressure on the government to regain lost ground in its rescue plan, euro zone finance ministers imposed a two-week deadline on the country to present a new set of measures.
The government’s talks with the troika were suspended three weeks ago due to its failure to deliver promised reforms. Disagreement also surfaced over the extent of new austerity measures.
