Moreover, in an attempt to prevent what has already happened, Greece seeks to avoid 'humiliation' with more cuts
Greece will try to avoid international "blackmail and humiliation" by speeding up reforms and civil-service staff cuts, the finance minister said Monday, hours before holding an emergency teleconference with creditors.EU, ECB, IMF Agree to Throw $302.8 Billion At Greece to Prevent a $40 Billion Default
Out of patience with the Socialist government's delays on promised reforms, Greece's partners and creditors are threatening to cut the cash lifeline without which the country would go bankrupt in less than a month.
"We expect the Greek authorities to explain, in particular, how they intend to close the fiscal gaps in 2011 and 2012 and how they plan to proceed with the structural reforms and privatizations," said Amadeu Altafaj Tardio, a spokesman for the European Commission.
Greece's economy is expected to contract by about 5.5 percent this year -- more than the 3.5 percent earlier assumed -- and a further 2.5 percent in 2012, according to new government and IMF estimates.
The government still must live up to its commitment to lower the 2011 budget deficit goal to 7.6 percent of gross domestic product.
When it became obvious earlier this month that there was a more than euro2 billion ($2.75 billion) shortfall in the budget, Greece's creditors threatened to withhold the sixth installment of a euro110 billion rescue package agreed upon in May 2010.
IMF representative Bob Traa urged the government to speed up structural reforms and avoid further emergency taxes, arguing that Athens should give up the "taboo" of firing public servants.
"I have compared Greece to a Mercedes that can go 120 kilometers per hour but is only going 40 because it has so much sludge in the engine," Traa told the conference.
"If you can do it (staff cuts) up front, you get over it much more quickly. Whether society can support that is a different issue," Traa told the AP. "Our experience is that ... if you do things gradually that may induce the public getting very tired. Adjustment fatigue is something that happens in every country."
The EU, ECB, and IMF could have and should have let Greece default two years ago. The cost would have been around $40 billion. Instead Greece received $152.6 billion, in aid agreed in spring 2010. That money has already been wasted. A second bailout of $150.2 billion was agreed in July but not yet squandered.
This blatant stupidity helped contribute to the massive undercapitalization of European banks. Throwing more money at Greece in belief Greece can meet 2012 growth and budget targets is delusional.
Yet that the remains the plan.
Greeks Discuss Drastic Moves to Receive Aid
The New York Times reports Greeks Discuss Drastic Moves to Receive Aid
The Greeks face an October deadline to qualify for 8 billion euros, or $11 billion, in aid, without which Greece will certainly default on its growing debt. Over the weekend, European finance ministers issued stern warnings at a meeting in Poland that failure to meet financial targets would imperil the release of the payment.Second Official Denial
The payment is just one installment in a larger package of 110 billion euros, or $152.6 billion, in aid agreed to by euro zone members in spring 2010; a second bailout fund, for 109 billion euros, or $150.2 billion, was agreed to in July, though that has yet to be ratified.
Greece officials are being pressed to put thousands of civil servants deemed to be “surplus” on a standby status at a reduced wage. The government has not yet pushed ahead with this measure, which is very unpopular in a country where nearly one million people out of a population of 11 million work for the government.
Several Greek news media outlets, including the influential center-left newspaper To Vima, on Sunday cited an internal government e-mail that set out priorities by Greece’s foreign creditors aimed at raising much-needed revenue quickly. These include cuts in the pensions of Greek sailors and employees of the state telecommunication company OTE, the immediate merger or abolition of 65 state agencies and the freezing of state workers’ pensions through 2015.
Adding to the Greeks’ dilemma is that the proposed cuts come as the Greek economy is contracting faster than expected. Last week, Mr. Venizelos warned that the economy would shrink much more sharply this year than anticipated — by 5.3 percent instead of the 3.8 percent originally forecast in May. The budget deficit is on track to reach 8.2 percent of gross domestic product this year, well ahead of the original estimate of 7.4 percent.
The original aid package requires Greece to reduce its deficit to 7.5 percent of gross domestic product this year, and below 3 percent by 2014, according to the International Monetary Fund.
Despite the dire circumstances, Mr. Venizelos denied rampant speculation that the country was on the brink of default.
We now have a second "official denial", this one from Greece. The implications are obvious. Please read Eurozone Breakup Logistics (Never Believe Anything Until It's Officially Denied) for a discussion.
Mike "Mish" Shedlock
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