Greece starts crucial talks with debt inspectors

NICHOLAS PAPHITIS
European Central Bank's (ECB) Klaus Masuch, right, and European Commission's director Matthias Mors, left, arrive for a meeting between Greece's new finance minister Yannis Stournaras and the debt inspectors from the European Central Bank, European Commission and International Monetary Fund, known as the troika at Greece's Finance ministry in Athens, Thursday, July 26, 2012. Inspectors overseeing Greece's faltering financial recovery return to Athens as the country again has its back to the wall.(AP Photo/Thanassis Stavrakis)

ATHENS, Greece (AP) — International debt inspectors started new talks Thursday with the Greek government that will determine whether the country keeps receiving vital rescue loans or is forced to default and potentially leave the common European currency union.

The heads of an inspection team from the European Union, the International Monetary Fund and the European Central Bank met for more than two hours with Finance Minister Yannis Stournaras.

A senior ministry official said that "both sides are well-disposed to find the best possible solutions." The official, who spoke only on condition of anonymity, said the government has identified proposed spending cuts for the next two years and would present them to the inspectors "very likely within the day."

Later Thursday, European Commission President Jose Manuel Barroso will hold talks with Prime Minister Antonis Samaras during his first official visit to Athens since mid-2009, when Greece's acute financial crisis broke out.

Talks with the EU, IMF and ECB inspectors — commonly known as the troika — are focusing on the progress of a program of stringent spending cuts and other austerity measures imposed on Greece as a condition for two international bailouts keeping the country solvent.

More importantly, Greek officials must also convincingly outline how they will save an additional €11.5 billion ($14 billion) in 2013 and 2014, while boosting revenues by €3 billion ($3.6 billion) to reduce the country's bulging budget deficit. Although the details have not been released, new cuts in public outlays are expected to affect pensions and civil service salaries as well as the health and welfare sectors.

The finance ministry official said no new cuts have been requested for this year.

"(The troika officials) were clear to us that they want us to implement what (Athens) committed in March to do," he said. "They never spoke of new measures ... for 2012."

He added that Athens insists on the need for a more generous deadline to implement the measures. "We always raise the question of an extension, and did so today, too," he said.

The bulk of the new cuts — worth an estimated €5 billion — will be borne by the Labor, Social Security and Welfare Ministry. Minister Yiannis Vroutsis, who will meet troika inspectors next week, has pledged that the cuts will be implemented "as fairly as possible."

Health spending will be reduced by some €600 million, partly through department mergers and development of ministry assets.

Greece's GSEE main labor union on Thursday said it strongly opposed the prospect of further belt-tightening for pensioners and workers.

"The decisions on new cuts in pensions and welfare benefits are not only unfair and ineffective, but will deliver the coup de grace to all those who have made the greatest sacrifices so far," a union statement said.

Greece is locked in a deepening recession, expected to reach a cumulative 20 percent since 2008. Unemployment is at a record high of about 23 percent.

Samaras, whose conservatives head a three-party coalition government, discussed the proposed cutbacks with his junior coalition partners before his meeting with Barroso. He will meet the troika representatives on Friday.

Analyst Martin Koehring, from the Economist Intelligence Unit, said Samaras'month-old government faces major political risks as it has promised to renegotiate the bailout terms.

"If it fails to deliver, there will be a rising risk that the government may fail and be replaced by an anti-austerity, left-wing government that could take Greece out of the euro area," he said in an e-mailed commentary.

Koehring said that Greece is already missing more than 200 of its bailout targets.

"That is why Mr Barroso's visit will not just be reassuring to the new government, but will also keep the pressure high on the government to get the (austerity and reform program) back on track," he said.

The troika will return to Athens in September to make a final decision on whether to disburse the latest tranche of bail-out money. In the meantime, the government will have to come up with additional painful austerity measures.

Greeks have been subjected to harsh cuts in pensions and salaries, coupled with repeated tax increases, for more than two and a half years. Anti-austerity sentiment is strong, and a small left-wing group is planning a protest in Athens against Barroso's visit later Thursday.