Creditors Spell Out Greece Austerity Measures

Published February 14, 2012 3:09PM (EST)

BERLIN (AP) — Greece's international creditors spelled out the spending cuts and reforms that Athens has to put into practise before it can receive vital bailout cash, according to a draft document obtained by The Associated Press on Tuesday.

Implementing these so-called "prior actions" is key for Greece to secure a second, euro130 billion ($172 billion) bailout, without which it would be forced into a disorderly default on its debts by the end of March. The measures are already part of a large austerity package that lawmakers in Athens passed over the weekend amid riots and violent protests.

The scale of the demands is evidence of a growing mistrust between Greece and its creditors — over the past few years Greece has often failed to implement promised reforms and spending cuts.

This time, the country's international creditors — the other 16 countries that use the euro and the International Monetary Fund — want to see tangible results before transferring any more money.

They are stipulating cuts worth a total of euro2.6 billion ($3.45 billion) that need to be implemented before Greece can get the bailout cash it needs to avoid a default in March.

Included are a euro1 billion ($1.32 billion) cut in pharmaceutical spending and a euro300 million ($398 million) reduction from the defense budget. Reducing central government and election-related spending will also reduce spending by euro270 million ($358 million), and subsidies of euro300 million ($398 million) to pension funds will also be slashed.

By March 20, when Greece has a big bond redemption to make, the document says the Greek government must also slash its public investment budget by euro400 million ($530 million) "through cuts in subsidies to private investments and nationally financed investment projects."

In addition, Greece has to find additional savings worth euro325 million ($431 million) to meet its debt reduction targets.

Greece's cabinet was set to discuss the new cuts Tuesday and the EU's Economic Affairs Commissioner Olli Rehn has demanded that the details of the euro325 million in savings are ready for eurozone finance ministers to assess when they meet in Brussels on Wednesday.

Germany, Europe's biggest economy, has been taking a robust stance against Greece.

German Economy Minister Philip Roesler called on Greece to deliver on its pledges, saying Sunday's vote in Parliament was "important but even more important is the concrete implementation."

"Decisions in Parliament are not enough, they then also have to be implemented," he said.

The detailed 49-page document, obtained by the AP from an official in Berlin who received an advance copy, is the Memorandum of Understanding — the legal basis for all international bailouts.

The memorandum also lists many measures that Greece has to implement after the disbursement of its next batch of bailout loans, including structural reforms meant to boost the country's competitiveness.

The finance ministers of Greece and the rest of the 17-country eurozone are expected to sign the Memorandum of Understanding at their meeting Wednesday.

The creditors say that Greece must step up its privatization efforts, although the country is given more time to sell off state assets. According to the document, Athens has to offer for sale its remaining stakes in state-owned companies excluding "only cases of critical network infrastructure."

Greece has promised that it will sell euro50 billion ($66.3 billion) worth of assets but progress has been slow.

On top of that, Greece has to push through a 25 percent increase in public transport fares and cut its government work force by 15,000 jobs by year's end.

The document also spells out a wide range of data that Greece must provide to its assessors on a regular basis, another sign of the country's loss of sovereignty.

Greece has been shut out of long-term debt markets since 2010, and is surviving on an initial package of euro110 billion ($146 billion) in rescue loans from its international creditors since May that year. But harsh austerity measures demanded in return for the emergency loans have hammered the economy, which is in decline since late 2008, with successive quarterly contractions since then, with the exception of the first quarter of 2010.

Fresh figures Tuesday showed that the country's economy shrank 7 percent in the fourth quarter compared with a year earlier.

Greece is also finalizing a debt write-off agreement with its private creditors, which would be equivalent to a debt relief of about euro100 billion ($132.5 billion).


Steinhauser reported from Brussels and Elena Becatoros in Athens contributed to this report.


Juergen Baetz can be reached on Twitter at:

By Salon Staff

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