Greece and creditors disagree on austerity course | News | DW | 08.12.2014
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Greece and creditors disagree on austerity course

Greece is seeing the green shoots of recovery and insists on exiting its international bailout program. But creditors are skeptical and they're calling for more austerity.

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International bailout aid for Greece is scheduled to run out at the end of the year, but EU finance ministers are set to pave the way for an extension of the program, if calls for further reforms are being heeded by Athens.

Ahead of the finance ministers' meeting on Monday and the payment of the last tranche of the current bailout program worth 1.8 billion euros ($2.2 billion), there is little agreement between Athens and Brussels over its budget and reform policy.

Jürgen Matthes from the Cologne Institute for Economic Research is confident that the two sides will reach agreement.

"In the past, there's always been a compromise in the end, albeit at the last minute," he said.

Greece simply does not have many alternatives, Matthes says, as it still finds it hard to raise money in the bond markets. Interest on 10-year Greek bonds currently stand at a hefty 8 percent.

Folker Hellmeyer, chief analyst at BremenLB, also believes that a compromise can be agreed on at the end of January and that the last tranche will be paid out.

"The current disagreement is about Greece's unwillingness to impose further savings measures, especially when it comes to pensions. For them, it makes poltical sense," Hellmeyer said.

'More reforms necessary'

On Sunday, the Greek parliament passed the 2015 budget. Prime Minister Antonis Samaras told Parliament it was the first balanced budget for decades. But the troika of International Monetary Fund, EU and European Central Bank cites different figures, suspecting a hole in the budget worth billions.

As a result, it is calling for more savings measures, which Athens has rejected outright.

Athens's creditors are also demanding increased structural reforms, but Greece's governing coalition of Conservatives and Socialists is keen to avoid or at least defer until after the elections next spring a new "catalogue of cruelties."

Hellmeyer from BremenLB has shone a positive light on Greece's reform efforts from the outset. He believes that a lot has gone better than expected by the troika. But he also thinks there is no alternative to austerity.

"There's been a lot of improvement, especially within the government's budget, but there arev also still major inefficiencies in the country's civil service," Hellmeyer said.

He believes the labor market still needs major reform, too. Currently, he says, the unions are trying to keep the status quo at all costs, making it harder for young people to get a fair chance.

Portugal, Ireland quicker to reform

Portugal and Ireland have both been quicker to reform their ailing economies than Greece, which admittedly started from a lower base and needed more wide-reaching reforms.

Matthes from the Cologne Institute for Economic Research says it is a political problem. While the governments in Portugal and Ireland saw the pressure from the troika as an incentive to change, the same cannot be said of Greece.

"Looking at it from the outside, you get the impression that the government is not wholly convinced of the need for reforms," Matthes said.

But he also says that "resistance to the reforms in Greece is much higher than in Ireland and Portugal so it's much harder for the government there," which he says is possibly down to politicians having failed to make the need for reforms clear to the Greek people.

No alternative to the troika

Athens' aim to get rid of the troika - or at least the IMF - is unrealistic at present. Matthes believes Greece needs to stick with the reform agenda, and the troika needs to continue to put pressure on Greece, possibly more gently than it has done in the past.

Samaras, however, has already declared his reform efforts a "success story" as he never fails to call it - in English - even when speaking to Greeks. Hellmeyer thinks it is not that far-fetched and that one should not scoff at Greece's achievements so far.

"They've been able to stabilize the economy long-term, albeit at a very low level. They've managed to stabilize the budgetary situation, and there are once again structural surpluses," he said.

So, yes, the word "success" applies, but "it's a success that needs to be worked on," in Hellmeyer's eyes.

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