Officials said Wednesday that they were within days of reaching a deal to reduce Greece’s crippling debt and to give it a second, $174 billion bailout.
As Europe starts to acknowledge that its austerity-driven policies elsewhere have not done enough to lift the continent out of its economic troubles, leaders have shown a new willingness to consider economic stimulus policies. But Greece, so far, remains an exception.
If Greece doesn’t lower its minimum wage, cut pensions and further slash spending on public health within days, European leaders have hinted that they are ill-inclined to keep loaning money to help the country pay its debts. They complain that Greece has fallen far short of meeting the financial promises that it has made over the past two years and has nearly run out of time to make up for it.
In Germany, frustration with Greece has grown so deep that leaders there briefly floated the idea last weekend of having a European commissioner take over the country’s budget and spending sovereignty for the duration of the bailout, sparking memories of Germany’s World War II occupation of Greece. They later backed off.
“Greece must live up to its commitments. We can only help when it is not a bottomless pit,” German Finance Minister Wolfgang Schaeuble told Deutschlandfunk radio Wednesday.
Some Greek leaders are incredulous that Europe is demanding cutbacks that could hurt the nation’s poorest first even as it talks about stimulating economic growth elsewhere in the euro zone. “If you cut salaries, incomes, pensions,” said Development Minister Michalis Chrisochoidis, “you cut everything, the demand decreases, and then consumption decreases rapidly. All the policies are part of a vicious circle.”
European leaders say that reducing Greece’s minimum wage would boost the nation’s competitiveness against countries such as Portugal, where labor costs are lower. But Greek officials and economists say that stronger competitiveness is virtually meaningless as long as their future with the euro is in doubt. Only the gutsiest investor, they say, is willing to gamble on the country in the interim, because if Greece goes back to its old currency, the drachma, inflation could wipe out a large portion of those investments.
But many others see the demands as way too burdensome. The cuts “are not necessarily very wisely thought out,” said a Greek official, speaking on the condition of anonymity to talk candidly about Greece’s perception of the demands from the European team of negotiators from the IMF, the European Commission and the European Central Bank. “The troika,” as the team is called, “is becoming harsher,” the official said.