The troika is coming

The Greek bail-out
The troika is coming
Greece’s new government is scrambling to find more spending cuts



TEMPERS frayed this week, as Greece’s new coalition government tried, and failed, to find €11.5 billion ($14 billion) of spending cuts demanded by the European Union (EU) and IMF in 2013 and 2014 as part of the country’s second international bail-out. “Some ministers didn’t seem to realise their budgets need to be slashed, not trimmed,” fumed a finance ministry official.

Yet one culprit, Antonis Roupakiotis, the justice minister, noted that his ministry’s allocation of increasingly scarce funds has already shrunk from €950 million in 2009 to €550 million this year. Mr Roupakiotis claimed that fresh cuts would result in a near-collapse of the judicial process. It is already plagued by inadequate court facilities and long delays in reaching judgments—especially in cases involving alleged corruption and tax evasion.
After a week of number crunching, the team led by Yannis Stournaras, the technocratic finance minister, was able to present only about €7.5 billion of cuts for approval by the coalition government’s three political leaders. About €4 billion of the cuts would come from reductions in social spending and from imposing a ceiling on public-sector pension payments of €2,400 a month, as well as barring Greeks from drawing two separate pensions.



The health-care system would also take a hit: spending on drugs and medical equipment, which health ministry officials say is still among the highest per person in southern Europe, would be cut by €2.1 billion. A plan to merge the country’s numerous state hospitals—many in the provinces are reportedly underused—would save another €150m annually.




To plug the gap the three governing parties, the conservative New Democracy, PanHellenic Socialist Movement and Democratic Left, may have to rip out a key plank in their joint policy-platform: a deal ruling out further across-the-board wage cuts for the civil service. The Greek Orthodox church may also be told to stump up half of the wage costs for priests, despite earlier reassurances that the state would continue to foot the entire bill.





Fotis Kouvelis, the Democratic Left leader, still insists that Greece will ask its European partners for an extra two years to implement the new austerity package. The excuse would be that Greece will be hit by a 6.9% fall in output this year, compared with earlier forecasts of 4.3-4.5%.











With its miserable record over the past two years of failing to carry though reforms, Greece has virtually no room for manoeuvre. Parliament passed the medium-term package, though not specific cuts, months before the election. Euro-zone partners are hostile to any suggestion of an extended deadline, as it would mean handing out yet more cash to Greeks. Scarcely a week goes by without Wolfgang Schäuble, the German finance minister, telling an interviewer that Greece must stick to its programme.




The moment of truth for Mr Stournaras comes on July 26th, when he is due to present the package of cuts to the “troika”— visiting officials from the EU, IMF and European Central Bank. If it falls short, the EU and IMF will come up with their own proposals. The political leaders will have little choice but to agree. Otherwise the supply of international money will dry up, raising the grim prospect that the government will not be able to pay pensions and civil-service salaries in August.