Greek austerity measures will work: deputy PM

By Farah Master and Dina Kyriakidou

SHANGHAI/ATHENS (BestGrowthStock) – The austerity measures Greece is likely to implement as part of a pending financial rescue deal will be enough to help avert default on the country’s debts, Deputy Prime Minister Theodoros Pangalos said on Saturday.

Talks to secure billions of euros in European Union and IMF aid to Athens in return for draconian budget cuts are edging toward a close, with European banks expected to contribute.

The European Commission said negotiations on the loan package should be wrapped up by Saturday, and a spokesman said euro zone finance ministers would meet to approve it on Sunday.

“The austerity measures will be efficient enough to avert a default,” Pangalos told Reuters on the sidelines of the opening of the Shanghai World Expo.

Greece is preparing measures to cut its budget deficit by 24 billion euros ($31.9 billion) to secure European Union and IMF aid of up to 120 billion euros over three years. Investors hope this will stop the crisis from sinking other fragile EU economies.

But the Greek government faces a battle with unions, which have been angered by the scale of the cutbacks, and social unrest could prevent Prime Minister George Papandreou from pushing through the austerity measures.

More than half of Greeks say they will take to the streets if the government agrees to new austerity measures, according to an ALCO poll released on Friday by the newspaper Proto Thema.

Underscoring investors’ jitters over the potential for public opposition to thwart the austerity program, the euro dipped after the poll was published.

Tensions over the measures could come to a head later on Saturday, when tens of thousands of Greeks are expected to march in traditional May Day protests.

The public sector union has also called a 4-hour strike for Tuesday, on top of a nationwide strike already set for Wednesday.

Pangalos, however, was confident the measures could be effectively implemented, echoing a call for unity by Papandreou.

“The demonstrations and strikes are normal in a democracy. It is normal people are not happy. We will help by trying to persuade the people, introducing new developments and strategies,” he said after opening the Greek pavilion at the Shanghai Expo.

Greece is doing what it can to respond to the crisis, putting the ball in Europe’s court, including on the issue of speculation, Pangalos said.


Market speculators have been blamed for aggravating Greece’s woes, as bets on the likelihood it might default on its debt have sharply driven up its borrowing costs.

“We can’t face global speculation (alone). This has to be faced by European policy, which is lacking now,” he said.

Although political barriers remain, the rescue package is likely to win the unanimous approval required from euro zone countries for it to go ahead.

The European Commission, European Central Bank, the IMF and the Greek government will unveil Greece’s austerity program on Sunday morning in Athens, euro zone spokesman Guy Schuller said.

The euro zone finance ministers will meet a few hours later in Brussels to approve the loan package and spell out its full size, he said.

European banks will contribute to the bailout, Germany said on Friday and that could make it easier for EU governments to persuade taxpayers to rescue Greece from its debt crisis.

A senior banking source told Reuters that Deutsche Bank AG Chief Executive Josef Ackermann, at the request of Germany’s finance minister, was helping coordinate efforts by the German private sector to support the rescue package.

The consortium has already pledged to contribute between 1 and 2 billion euros, which could involve buying Greek government debt, but no formal agreement has been struck, the source said.

German Chancellor Angela Merkel, in an interview to be published on Sunday in Bild am Sonntag newspaper, said she would welcome a “voluntary participation from banks.”

Despite the good short-term prospects for euro zone approval, there are still serious doubts over whether European governments will sustain their commitment to Greece in the long term, especially if Greece fails to meet its budget cut targets.

If euro states fail to engineer a Greek bailout that calms markets, they could end up footing a bill of half a trillion euros ($650 billion) to save several nations, economists say.

Markets have worried that countries like Portugal and Spain — whose debts were downgraded by ratings agencies this week — could be threatened unless they tackle their deficits swiftly.

However, European Commission President Jose Manuel Barroso, also in Shanghai for the opening of the Expo, said on Friday in Beijing that the Greek rescue package would prevent the crisis from spilling over to other countries.

“It is about safeguarding the overall financial stability of the euro zone,” he said.

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(Additional reporting by Edmund Klamann in Shanghai; Writing by Jason Subler; Editing by Jeremy Laurence and Ron Popeski)

Greek austerity measures will work: deputy PM