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Chaos in the Greek parliament following a row over the country’s revised bailout plan brought fresh gloom to the eurozone as figures showed the currency union moving closer to recession.The Greek finance minister was forced to drop claims that he had secured a two-year extension for debt repayments and an agreement with creditors over €13.5bn (£10.9bn) of proposed austerity measures when he addressed MPs on Wednesday.
Yannis Stournaras had previously told MPs that a deal was ready, only to later admit that negotiators had yet to approve a final draft. The U-turn, which Stournaras was forced to admit after Germany denied any deal, triggered chaotic scenes in parliament as opposition MPs objected to proposed tax rises and job cuts.
It was unclear last night whether the government will be able to submit two separate bills on austerity cuts and labour reforms due to be debated in parliament next week.
Greece has spent months in talks with its creditors, headed by the troika of the International Monetary Fund, the European Central Bank and the European Union.
Stournaras wants Greece to cut its debt pile by reducing the interest and extending the term of its bailout loans. Analysts still expect Athens to win improved loan terms, though not until it relinquishes more supervisory powers to the troika, which wants to closely monitor any deal.
One Greek official said the troika would need to back down over demands for tough labour laws or risk a political revolt.
“Even if the troika give us a negative report, what are they going to do? Are they really going to not give us the instalment [to keep Greece’s economy afloat] two weeks before the US elections, with everything that entails – default, bankruptcy, global market turmoil?” he asked.
“These labour reforms will turn our country into Bangladesh. They have no fiscal benefit and will actually derail the adjustment programme. The political system will collapse if we impose them.
“The troika is demanding that we commit suicide, which is why we believe this is a matter that should be solved on a political level by the prime minister and not with the troika.”
Stournaras was forced into his U-turn after the German finance minister, Wolfgang Schäuble, told reporters in Berlin that a deal would be impossible until the troika concluded its report.
Schäuble, who is a key architect of the austerity measures dominating Europe’s economic landscape, warned that the eurozone’s finance ministers must also read the report before agreeing to the two-year loan extension called for by the Greek government.
The failure to settle the long-running dispute in Greece over the terms of its second bailout came as the latest data showed other eurozone economies worsening.
Factory output plunged in Germany, Europe’s top economy and exporter, matching deteriorating conditions elsewhere that suggested the downturn will accelerate over the last quarter of 2012.
The financial data provider Markit said its eurozone purchasing managers’ index (PMI) fell to 45.8 in October, its lowest reading since June 2009. The index has now been below the 50 mark that divides growth from contraction since February.
Chris Williamson, Markit’s chief economist, said the eurozone was heading for recession. “The PMIs are running at levels in the third quarter and start of the fourth quarter historically consistent with GDP falling at about 0.6%,” he said.
A decline in manufacturing output in Europe was offset by figures from the US and China showing the world’s top two economies recovering from a poor summer.
A survey of Chinese manufacturers showed output shrank for a 12th straight month, but at the slowest rate for three years and order books were their most robust since April.
Manufacturing grew in the US, edging up to 51.3, said Markit. But falling overseas demand and uncertainty surrounding the US elections and fiscal policy suggested the sector’s recent struggles would continue in the months ahead.
Many US companies have reported lower earnings for the quarter, hit by lack of demand and slower global growth.
This article originally appeared on guardian.co.uk
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