Greece: Ladies and Gentlemen, Please Fasten Your Seat Belts

It’s true that a number of indices, from economic sentiment to bond spreads, have improved over recent months. The troika’s fiscal targets, meanwhile, have never been in doubt and a primary surplus will be secured by the end of the year. There are also signs that the recession is bottoming out. Unemployment figures, however, continue to be brutal and the number of people and businesses being pushed to the edge is not abating. Non-performing loans are also rising and the government’s cash deficit is growing.

All of this means little, though, when matched up to the troika’s prevailing view. If economic reality is keeping Samaras’s flight from gathering the necessary speed, then Greece’s lenders are providing the hurricane conditions keeping it grounded. Last week’s suggestion that Athens would have to find about 2 billion euros more of austerity measures to cover a fiscal gap next year was a potential death knell for Samaras’s coalition and a hammer blow for Greece’s beleaguered society.

For one, Samaras and his ministers have been busy over the last few months telling anyone who’ll listen that there would be no new cuts next year. There is no doubt they spoke prematurely but they also had every reason to believe that the primary surplus at the end of the year would be enough to ward off any demands for more cuts from the troika. Their pronouncements were also born of a political necessity. The 2014 draft budget already contains about 4 billion euros, or 2 percent of GDP, of measures and Samaras knows that convincing Greeks more is needed on top of this will be a thankless task.

Then, there is a question of where these extra savings would come from. Samaras has already shut down state broadcaster ERT, torpedoing his three-party coalition in the process, and disbanded a profit-making municipal police force to meet the troika’s targets. Pensions and public sector salaries have been slashed by more than a third and social spending has been reduced to a drip feed. While there is still waste that can be addressed, finding 2 billion euros at this stage of the Greek crisis is more than just a tall order. With no genuine growth due at least until 2015, it seems an impossibility to make up for a lack of extra revenues by squeezing more out of a public sector that is already being dismantled.

It has been suggested that more public organisations could be shut down to save money but there are few such bodies large enough to make a difference. The effectiveness of the Greek National Tourism Organization, for instance, has repeatedly been questioned. But it has just had its annual budget slashed to 7.5 million euros. How many of those would Samaras have to find to meet the troika’s new demands?

The prime minister’s problems don’t end there, though. The European Central Bank has nipped in the bud talk of Greek bonds maturing next year, with a value of about 10 billion euros, being rolled over to cover Greece’s financing gap.

*Read the full article at The Agora.

**Image by AP.