ATHENS — Europe’s plans to help Greece avoid piling up another mountain of debt are straightforward enough on paper: Get the government to cut its spending, mainly by trimming the large public sector, and increase its revenue, mainly by collecting the taxes it already has in place.
In practice, those goals require a fundamental overhaul of the Greek system, which would be difficult in the best of times and is proving torturous now. Plans to raise money by selling off state property have collided with a new tax on land that makes investors less interested in buying it. Efforts to curb rampant tax evasion are hampered by deep pay cuts for tax collectors. In the meantime, the country is close to running out of money.
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On Tuesday, after more than a month of uncertainty, an inspection team sent by the administrators of Greece’s bailout recommended that the country receive an additional $11 billion installment in early November, subject to the approval of the International Monetary Fund’s executive board and euro zone finance ministers. But they said the country had missed its bailout targets and would need to make even more painful cuts in 2013 and 2014.
The officials said in a statement that the country’s budget targets were beyond reach for 2011, and that the economy will continue contracting for at least another year. A longer-term bailout remains under negotiation and may now mean deeper-than-expected losses for the banks and other private investors that hold Greek bonds.
Europe is increasingly inclined to give up on much of Greece’s debt, which would relieve the pressure to reform but would have uncertain consequences for all the European economies.
German Chancellor Angela Merkel and French President Nicolas Sarkozy announced Sunday that they would support a plan to shore up banks to guard against a major financial crisis, and they said they would also support fundamental changes to the way the European economy is run.
Ordinary Greeks, meanwhile, feel that neither their leaders nor Europe’s are up to the challenge.
“You cannot every three months come waving the flag of catastrophe and ask for more money,” said George Moraitis, 62, a photographer, referring to both the Greek government and the European administrators of the country’s $150 billion bailout.
In the spring, Greek leaders announced an ambitious plan to raise $67 billion by 2015 by privatizing a long list of state-owned companies and properties, a major change for a government that had long run the companies as patronage machines. The IMF and other creditors have called the privatizations crucial if Greece is to make its economy more competitive and if the government is to reduce its financial obligations.
But the plan faces major hurdles. Attracting investors is hard because credit inside Greece has frozen and banks outside the country are cautious about what would happen if the economy plunges further. And those in charge of setting prices face the politically unpopular task of selling off assets at values far below what they could make under more favorable economic conditions.