Eurozone demands more Greece cuts

Feb 10 2012

Just hours after Greece gave in to painful new job and spending cuts, European ministers have declared that Athens did not go far enough and demanded more within a week in exchange for a 130 billion euro bailout to stave off bankruptcy.

The ministers gave the debt-ridden country until the middle of next week to find an extra 325 million euro in savings, pass the cuts through a divided parliament, and get written guarantees that they will be implemented even after the elections of a new government in April, said Jean-Claude Juncker, the Luxembourg prime minister who chaired Thursday's meeting of finance chiefs of the 17 euro countries.

The new austerity plan, which makes sharp cuts to the minimum wage and thousands of public-sector jobs, ignited fresh criticism from unions and the country's deputy labour minister, who resigned in protest after Greece agreed to the deal.

Even debt inspectors conceded that the new measures would keep the country in a recession for a fifth straight year. But Greece's finance minister warned that the alternative will likely be worse.

"Unfortunately the choice we face is one of sacrifice or even greater sacrifice - on a scale that cannot be compared," Evangelos Venizelos told reporters, after the meeting with ministers from the 16 other countries that use the euro.

Other European officials warned that more severe steps still might be necessary. "Greece still has its homework cut out," Jan Kees de Jager, the Dutch finance minister, said after the meeting. "A lot of measures need to be clarified and taken."

A European official said earlier he still saw 10 to 15 issues before the deal could be concluded, including doubts that Greece could lower its debt level down to 120% of its annual economic output by 2020 and that labour market reforms would restore the country's competitiveness.

On top of that, the ministers were seriously considering a plan proposed by France and Germany to force Greece to set up a separate account dedicated to repaying its debt, said Olli Rehn, the EU's economic affairs commissioner.

Such an account would be an unprecedented intrusion into the fiscal affairs of a sovereign state in Europe. The plan underlines the frustration that has built up in the eurozone over Greece's slow reforms over the past two years.

Greece is under immense pressure to reach a rescue deal. On March 20, it has to redeem 14.5 billion euro in bonds - money which it does not have. The country's total debt is 350 billion euro - equivalent to 160% of its annual economic output - and unsustainable even for a healthier economy.