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The news out of Europe has been pretty quiet for the balance of September since the big ECB bond-buying plan was unveiled two weeks ago.But yesterday, Citi chief economist Willem Buiter and his economics team warned in their latest global outlook that if anything, the likelihood of a Greek exit from the euro has increased.
And next week, the Greek parliament will likely vote on whether to approve another round of budget cuts required to satisfy the conditions for crucial bailout funds imposed by outside creditors.
The parliament will be voting on the cuts in the face of what promise to be massive protests against the austerity measures organised by two of Greece’s most powerful unions.
Now, it sounds like Greek leaders are having trouble coming to agreements on the cuts, which needs to be done before a vote can even go to parliament.
Athens newspaper Kathimerini reports today that Greek prime minister Antonis Samaras failed to secure agreement from coalition parties on the €2 billion in budget cuts needed to bring the total savings to the government’s €11.5 billion target (troika creditors – the EU, ECB, and IMF – have only accepted €9.5bn of the planned austerity package).
The Greek government is insistent that the troika is being unreasonable about the austerity measures. Leader of the Democratic Left coalition party Fotis Kouvelis, who was at the meeting, said after that “the troika must stop attacking Greek society, which has certain limits.”
Greek finance minister Yannis Stournaras made it sound like the troika is making it really hard for Greece, too. Via Kathimerini:
Stournaras remained tight-lipped about the content of the discussion when he emerged from the premier’s office. He suggested that the coalition is attempting to avoid further cuts to wages and pensions by convincing its lenders that savings can be made through structural changes in the public sector.
“It’s a very difficult negotiation and we are trying to convince the troika to accept reform measures,” he said. “I think the measures will be sealed soon.”
Stournaras indicated that the part of the savings that has yet to be agreed relates to an overhaul of the public administration. Reports suggest that this amounts to some 2 billion euros.
This is all coming after a meeting between Greek officials and troika representatives last night, during which an argument between both sides “erupted” over austerity measures, according to Kathimerini.
What’s worse: the Greek government can’t even agree internally on the highly-contentious and wildly unpopular budget cuts.
Citi economist Jürgen Michels explains the latest conflict between the Greek coalition parties in a note to clients this morning:
At the heart of the friction between Coalition partners are PASOK’s and Democratic Left’s insistence that the PM finds ways of delivering the remaining savings without the use of large scale compulsory redundancies in the Civil Service. Under the 2nd bailout agreement signed in March 2012, the Greek government committed to cut the number of public servants by 150,000 by 2015.
However, according to [Kathimerini], Administrative Reform Minister Antonis Manitakis insisted on Wednesday that this target would be met without the coalition having to make any immediate sackings. According to Manitakis, 40,000 Civil Servants are due to retire by the end of the year and another 35,000 would leave through voluntary retirement. Coupled with a strict hiring policy that would only allow one new recruit for every five that leave, Manitakis said this would be enough to reduce civil servant numbers by some 200,000 by 2015.
That’s not such a surprising stance from Manitakis when you consider the spectre of a big worker strike by Greece’s two most powerful unions next week.
Meanwhile, the Greek government is selling off public property en masse in a desperate – but arguably futile – attempt to raise cash.
Yet despite all of the trouble, markets appear unnerved. And European leaders are still acting like it’s no big deal.
Horst Reichenbach, the German head of the European Commission’s Task Force for Greece, met with Greek officials on Tuesday, and according to Kathimerini, “Reichenbach reportedly said that the Greek ministry is conducting the best and most reliable monitoring of a national budget’s execution in the whole of the European Union.”
And Citi economists surmised in a report yesterday that “the Troika members probably are now much less fearful than early this year about the systemic consequences of Grexit.”
Greek officials are set to try again Sunday on reaching an agreement over the budget cuts. It remains to be seen whether they can put the ball back in Europe’s court.
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