Greece Wavers On Fiscal Reforms

by Ulrika Lomas, Tax-News.com, Brussels

Tuesday, February 07, 2012

Greece’s ruling coalition parties have so far failed to reach an agreement on whether or not to accept the painful terms of the second international bailout package, reluctant to implement further austerity measures to secure the EUR130bn (USD170bn) deal.

Although leaders of the socialist Pasok party, the conservative New Democracy party and the far-right Laos party have united on plans to reduce public spending by 1.5% of gross domestic product (GDP), and on bank recapitalization, they nevertheless failed to reach a consensus on plans to lower the minimum wage, to implement labour market reforms and to abolish the annual bonus currently paid to workers in the form of a thirteenth and fourteenth month extra salary, measures aimed at improving the competitiveness of the debt-ridden country.

Gradually losing patience, the troika, comprising the European Commission, the European Central Bank and the International Monetary Fund, have recently increased pressure on Greece to reform, demanding internal political unity and calling for all key parties to back the controversial savings measures.

Luxembourg’s Prime Minister and President of the Eurogroup Jean-Claude Juncker also recently insisted that Athens adopt a greater will to reform, and has no longer ruled out the possibility of state bankruptcy. In a veiled threat, Juncker warned that if Greece fails to implement the necessary reforms, it can no longer expect to receive solidarity from others, and will be forced to declare itself insolvent in two months.

Greece’s coalition parties will have to deliver their decision to eurozone ministers shortly. The country’s New Democracy and Laos parties remain, however, fiercely opposed to further wage and spending cuts, fearing that any new austerity measures will merely serve to force the country into an even deeper recession.