Athens Statement Eases Market Nerves, but Some Officials Fear More Cuts Will Lead to New Protests.
Greece said it had "a productive and substantive discussion" with its official creditors on Monday in talks aimed at releasing a new slice of bailout aid, and a Greek finance ministry official said an agreement was close.
U.S. stocks, which had initially declined on Greek-induced gloom, recovered some of their losses late in the trading day after the Greek statement.
Following Finance Minister Evangelos Venizelos's conference call Monday evening with the troika—the International Monetary Fund, European Commission and European Central Bank—the ministry said another call would take place Tuesday, after technical discussions. A Greek official said an announcement was likely on Wednesday.
There was no immediate response from the troika.
Greece's government is scrambling to meet conditions for a fresh infusion of official aid, and worries about a looming default have undermined sentiment in markets across the globe. Earlier in the day, stock markets had retreated in Europe, with the Paris bourse falling 3% and Germany's 2.8%, and government-bond prices slid across most of the euro zone. The euro also fell.
Greece's official lenders are seeking hard evidence that Athens intends to take action to close a budget deficit now set to exceed its targets. They are threatening not to release €8 billion ($11 billion) in bailout funds, without which Greece will likely run out of money next month.
Greece is in a bind. Its official creditors say it isn't following through on promised steps to reduce its deficit—but austerity measures so far have pushed the economy into deeper recession, squeezing tax revenues and increasing spending on social safety nets. Greek officials now expect the economy to shrink 5.5% this year.
Mr. Venizelos said earlier that Greece would announce the closure of several state-linked organizations this week and make further spending cuts in its 2012 budget. Greek officials said the troika is pressing for cutting public-sector jobs and even rescinding employment of people hired earlier this year and last.
"We will publish this week decisions on the restructuring of public bodies," Mr. Venizelos told a business conference Monday. "In light of the new budget, it is clear that our emphasis will be on the spending side."
Monday's action followed a weekend meeting of European finance ministers in Poland, where officials warned that Greece may not receive more help unless it brings its budget back into line. Those warnings prompted Greek Prime Minister George Papandreou to abort a trip to New York and to the IMF annual meeting in Washington this week.
ECB governing council member Jens Weidmann said Monday that there would be "unpleasant" consequences should Greece not get further international aid because of failing to fulfill the terms of its rescue package.
"One must know that that will certainly be a relatively unpleasant scenario, not only for Greece, but also for other participants," the head of the Bundesbank warned while addressing the German parliament's budget committee. But he didn't rule out such a scenario. "If the [reform] program is, however, not implemented, then the basis for further payments also is dropped," he said.
Greece is due to submit its 2012 draft budget to parliament on the first Monday in October, as foreseen by the Greek constitution. The plan will be voted on by the end of October.
A senior IMF official, speaking at the same conference as Mr. Venizelos on Monday, urged more Greek cuts, particularly in the public sector.
"Additional measures will need to be taken for the deficit to be reduced to sustainable levels," said Bob Traa, IMF senior representative for Greece.
According to Greek government officials, the troika is pressing Greece to cut 100,000 public jobs by 2015, either through outright layoffs or by placing some of those workers in a special labor reserve. Workers on reserve would be retained on 60% salary for up to a year, but would face dismissal after that if no new jobs were found for them.
Greece might also have to consider retroactively—and with immediate effect—rescinding all public-sector hiring that took place in 2010 and 2011, Greek officials said. That could affect 25,000 or more workers, one official said.
The troika has asked Greece to consider raising taxes on tobacco, alcohol and luxury goods. Athens is also under pressure to step up plans to close or merge dozens of public-sector bodies.
Last week, the government announced a new property tax that, coming on top of other recent tax increases, has met with rising public opposition.
Combined with the public-sector cutbacks, some government officials fear those steps could provoke a new outburst of public protest and possibly new elections.
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