The IMF has scaled back its percentage stake in the Greek loan package but remains assertive in the eurozone, calling for more austerity and raising questions over whether periphery nations will play along.
In February, the Greek cabinet approved €325 million ($430 million) of additional spending cuts needed to complete €3.3 billion worth of austerity measures (see Update 78, 77), some of which will require new legislation. Policies include: stern labour reforms such as a reduction in the minimum wage by 32 per cent for people under 25, and 22 per cent for those over; 15,000 state workers placed on “labour reserve”, receiving 60 per cent of their wages for a year and facing redundancy thereafter; and cumulative privatisations of at least €4.5 billion. The announcement was met with protests as private and public sector unions united in their criticism of the reforms and their impact on workers’ rights.
Greece’s loan package, the second IMF-European Union (EU) loan package since the beginning of the crisis, was officially approved by the IMF in mid March and is reported as being worth €130 billion. The IMF’s contribution is 15.2 per cent versus 27.5 per cent for the first loan. In addition, the previous loan was a stand-by agreement, but the new loan is through the extended fund facility (EFF), characterised by longer disbursement and repayment periods. Greece’s EFF will be disbursed in equal installments over four years, and is equivalent to a staggering 2,160 per cent of its IMF quota.
According to newspapers the Financial Times and Wall Street Journal the loan’s actual value will be between €164 billion and €173 billion because it will include loans from the previous agreement yet to be delivered. Of this, €86.4 billion is available to Greece for its budget and debt repayments through 2014; €30 billion will be given to private bondholders; and €48 billion to Greek banks to aid recapitalisation.
In early March, Greece completed a debt swap with its private creditors seeking to facilitate a reduction in its debt to 120 per cent of GDP by 2020. The terms of this private sector involvement (PSI), written into the new loan agreement, has commentators worried that a future default will force the country into submission. “What drives Greece into a corner is the term forcing the Greek government to waive sovereign immunity, thus allowing creditors to confiscate state assets” wrote Greek economist Leonidas Vatikiotis.
Economists at the Royal Bank of Scotland find the debt reduction targets and projections “too rosy”, predicting that Greece will end up with a debt ratio closer to 160 per cent. Even the Troika of lenders – the EU, the European Central Bank (ECB) and the IMF – admitted as much; in a secret report leaked in February to the Financial Times they confess that the targets will be difficult to reach even in the most optimistic of scenarios, saying that “prolonged financial support on appropriate terms by the official sector may be necessary”.
Sonia Mitralia from the Greek Committee Against Debt argues “the Greeks must renounce this debt, which is strangling them and is not of their making. The astronomical sums used to service the debts should be used instead to satisfy the basic needs of society: health, education, services for the unemployed, children, and for the women who are now obliged to carry out all the tasks that were done by the public services before they were dismantled and privatised.”
In Ireland, payment on a €3.1 billion promissory note, issued by a nationalised bank, that was due at end March, has been delayed. The Anglo Not our Debt campaign argued that the money should be used to fund public and community based services, but the government now plans to pay the bondholders with long-dated government bonds. Campaign spokeswoman Nessa Ní Chasaide, said: “rather than refuse the socialisation of massive private bank losses, this move will see the state, and ultimately the people in Ireland, assume full sovereign responsibility for debts run up by private speculators.”
Tensions were further raised by a March IMF report suggesting cuts to free travel, electricity and gas allowances and medical cards for those aged over 70. Irish NGO Age Action said the Fund was “poorly informed” as to the full extent of the impact of cuts on older people, after it claimed they had “remained largely unaffected by recent welfare adjustments.” Although the IMF report concludes that “debt sustainability remains fragile”, it expects Ireland to exit its official support programme at the end of 2013 and be able to borrow in the markets thereafter.
The Fund is also predicting a 2013 entry into bond markets for Portugal, where public spending has been cut and taxes raised to meet the terms of the €78 billion IMF-EU loan. However, Portuguese economist Nuno Teles, contributor to the Ladrões de Bicicletas blog, believes that high levels of public and private debt in addition to poor growth condemn the programme to failure: “despite constant government statements saying otherwise, it is clear that Portugal will not meet the schedule planned by the Troika, public debt is at 110 per cent of GDP and rising, and unemployment is touching 15 per cent.”
In Romania, despite protests (see Update 79, 66), a privatisation plan is now underway under prime minister Mihai Razvan Ungureanu, who took power in February. Sell-offs of the national petroleum, hydroelectric and nuclear firms have been agreed under a €5 billion IMF-led deal struck in 2011 to replace the completed €20 billion loan.