Seventh austerity package (Greece)

Seventh austerity package - October/November 2012 measures
Coat of arms of Greece
Hellenic Republic
Approval of the Medium Term Fiscal Strategy Plan 2013-2016,Urgent implementation measures of L.4046/2012 and the Medium Term Fiscal Strategy Framework 2013-2016.
(Law 4093/2012)
Territorial extent Greece
Enacted by Hellenic Parliament
Date passed 31 October and 7/8 November 2012 (For: 153; Against: 128; 18 Abstentions)
Introduced by Government of Greece
Status: In force

The seventh austerity package is part of the countermeasures of the Greek government to counter the Greek government-debt crisis. It was approved by the Hellenic Parliament in October 2012.

The seventh austerity package is a continuation of the 89 austerity and reform requirements outlined by the second bailout package (March 2012).

Specific measures

Some of the main elements are:

The fiscal plan is an extension of the initial bailout package, as it contain the framework for additional €5.3bn of measures (primarily tax hikes) to be implement in 2015–16 along with the €13.5bn of measures for 2013–14. The extension (and framework agreement for that) will likely be covered in more details by a new third bailout program in November 2012, and could perhaps also be described as the seventh austerity package, as it will likely only be defined in full details around summer/autumn 2014 where the Greek parliament is required to pass it as final law.

History

The seventh austerity package and reforms framework were outlined already in the second bailout agreement (March 2012). Initially, the package only dealt with those €13.5bn of measures (comprising €10bn spending cuts and €3.5bn tax hikes) accepted and signed by the Greek politicians for implementation in fiscal year 2013 and 2014. According to the plan for implementation of the second bailout agreement, the measures were expected to have been passed by the Greek parliament in June 2012.

The passage of the austerity package was delayed due to political turmoil in Greece. Two national parliamentary elections were held, on 6 May and 17 Jun. Subsequent political call prompted by a worsened recession to ask for a 2-year extension of the bailout programme, along with the politicians conducting stubborn and slow negotiations to settle the exact content of the measures in the package, it was only finalised in all details at 29 October 2012.

Negotiations

As of 1 October 2012, the Troika and the Greek government were still in the process to negotiate and agree on a €13.5bn austerity package for 2013–14, of which €10bn should be implemented as spending cuts and €3.5bn as tax hikes. The Greek government's latest proposal for the Troika, was that the financial budget for 2013 should implement the first €7.3bn of spending cuts and €0.5bn of tax hikes; with the remaining part of the austerity package scheduled for implementation in 2014. The official Troika report featuring a new status for the bailout plan and a sustainability analysis of the Greek economy, is expected to get published later in October 2012.[1] According to earlier official Troika statements, the conclusion of the report will highly depend on the level of ambition and seriousness of the Greek government's measures agreed to in the "austerity package", and also depend on how much progress the government has delivered on implementation of the needed structural reforms and privatisation program.

According to sources involved in the negotiations, the Troika on 2 October had explained to the Greek government, that the following points (all agreed upon in the March 2012 bailout agreement) still had to be complied with, before the withheld €31.5bn capital payment (of which €23bn was earmarked to recapitalisation of banks) would be released:[2]

In addition to the points above, the Troika also currently discuss with the Greek government how the Labor market reform should be, where the Troika reportedly pushed for lower minimum wages and a 30% reduction of the compensation paid by firms to dismissed employees; with this proposal however being rejected by the Greek government. Another point of disagreement is if the 20,000 civil servants losing their job after a merging and abolition of around 250 state organisations, should be directly laid off from the public sector (recommended by the Troika) or placed in a so-called "labor reserve scheme" at a reduced wage for two years before having their status re-evaluated (preferred by the Greek government).[2]

On 3 October sources from the Greek Ministry of Finance revealed, that the Troika had also requested the government to frontload the austerity package with measures of €9.3bn in 2013 with the remaining €4.2bn to be implemented in 2014. Reason being, that the Troika expects a slightly worse GDP decline in 2013 compared to the forecast published by the Greek government, and that the economy subsequently would recover faster if the austerity package frontloaded its savings for 2013. According to the Greek newspaper Kathimerini, the first extra €0.6bn of increased savings in 2013 will most likely be found by removing all Christmas, Easter and summer bonus payments for civil servants, equal to €1000 per year for each civil servant.[3]

According to the source Kathemerini had interviewed, the Troika had also indicated they were willing to accept the large trunk of unspecified savings from structural reforms, if the Greek government were ready to accept the called for frontload of the austerity package. IMF at the same time also called for a decision to liberalise the fuel sector, as their review report of the sector had concluded, that Greeks on a yearly basis currently pay about $1bn more for fuel than they should.[3]

The Greek government will attempt to sign a final deal with the Troika, about the content and size of the needed "austerity package" and "Fiscal budget 2013", before the scheduled Eurogroup meeting on 8 October.[4] If the Eurogroup approve the content of the negotiated deal, it will be submitted for a final approval or further consideration by the European head of states at the EU summit on 18 October 2012.[5] As the exact content of the agreed "austerity package" first needs to be known, before the Troika's "surveillance report" can conduct reliable calculations and reach its conclusion about the sustainbility of Greek economy, it is expected this important report will now only get published in the first half of November.[6]

On 17 October the Troika ended its review mission on ground in Greece, and released the following statement:[7]

"The [Greek] authorities and [Troika] staff teams agreed on most of the core measures needed to restore the momentum of reform and pave the way for the completion of the review. Discussions on remaining issues will continue from respective headquarters and through technical representatives in the field with a view to reaching full staff level agreement over the coming days. Furthermore, financing issues will be discussed between the official lenders and Greece."

Responding statements from the Greek government indicated an agreement about core elements of the package indeed had been agreed. There was however still disagreement about the labor market reform, with the Greek government still resisting to conduct direct layoffs or extra wage/pension cuts for public workers. And another outstanding point, was that the Greek government required that the Troika should finance a 2-year delay of the fiscal targets in the bailout plan, to avoid the need for the government also to pass an additional austerity package (beside of the one €13.5bn currently being negotiated about) to reach the initial fiscal targets. It was likewise hoped, that these additional disagreements soon could be settled during additional talks with headquarters.[8][9]

At the EU summit on 19 October, it was announced the Eurogroup would arrange an extraordinary conference call meeting on 29 October with the purpose to approve the final version of the austerity package, and provided this package subsequently was passed by the Greek parliament before 11 November, the Eurogroup was ready to make the decision on their ordinary meeting at 12 November to accept the release of the earlier withheld bailout funds.[10]

List of main events from 16 October to 12 November

The crucial pass in November of the Labor market reform, Midterm fiscal plan 2013–16 and Fiscal budget 2013, however was only achieved at a high political price, as it resulted in the exclusion of several MPs from the three coalition parties. After the election in June, New Democracy (125) have lost 4 MPs while PASOK (26) lost 7 MPs, and finally Democratic Left (14) decided to freeze out 3 MPs. This mean, that the combined majority of the three-party coalition has been reduced to 165 MPs, and that the combined majority for the two most reform-friendly parties has now been reduced to the lowest possible at 151 MPs.

Approvement by the Hellenic Parliament

On 7 November 2012, amidst mass protests of tens of thousands of people, the Greek parliament narrowly approves another austerity package worth €13.5 billion. Without the vote, the troika has warned, Greece would not receive the next instalment of €31.5 billion in financial aid.[41] Greece prime minister Antonis Samaras told MPs that this package was "definitely the last",[42] though some commentators immediately disagreed.[42]

The latest measures include pension cuts on average between 5% and 15% and an increase of the retirement age from 65 to 67. Wages of civil servants are cut again by up to 20%. Some workers from the public sector will lose as much as 30% of their salaries.[43]

See also

References

  1. "Draft budget to reserve biggest chunk of austerity measures for 2013". Ekathimerini.com. 1 October 2012. Retrieved 1 October 2012.
  2. 1 2 "Troika steps up demands". Kathimerini (English edition). 2 October 2012. Retrieved 2 October 2012.
  3. 1 2 "Troika wants faster cuts: Inspectors want Athens to increase reductions for 2013 to secure overall deal". Kathimerini (English edition). 3 October 2012. Retrieved 3 October 2012.
  4. "Contacts Troika in Athens" (in Greek). Kathimerini. 1 October 2012. Retrieved 1 October 2012.
  5. "Troika sticks to its guns in austerity talks". Kathimerini (English edition). 1 October 2012. Retrieved 1 October 2012.
  6. "Unsustainable debt, restructuring or new stimulus package" (in Greek). Kathimerini. 4 October 2012. Retrieved 4 October 2012.
  7. "Statement of the Troika on the review of the Greek Programme". European Commission. 17 October 2012. Retrieved 18 October 2012.
  8. "Coalition partners lash out at troika". Kathimerini (English Edition). 16 October 2012. Retrieved 18 October 2012.
  9. "Greece's lenders say near austerity deal for fresh aid". Kathimerini (English Edition). 18 October 2012. Retrieved 18 October 2012.
  10. "Samaras meets with Merkel in Brussels". Kathimerini (English Edition). 19 October 2012. Retrieved 19 October 2012.
  11. "Eurobank: Bond-exchange initiative could trim recap needs". ekathimerini.com. Retrieved 2012-12-07.
  12. "Bank recapitalization to be split into three steps". ekathimerini.com. Retrieved 2012-12-07.
  13. "Realty tax discounts cut in half". ekathimerini.com. Retrieved 2012-12-07.
  14. "New tax bill to hurt households". ekathimerini.com. Retrieved 2012-12-07.
  15. "Final stretch for Greece before Eurogroup". ekathimerini.com. Retrieved 2012-12-07.
  16. "Gov’t introduces ministry monitoring system". ekathimerini.com. Retrieved 2012-12-07. C1 control character in |title= at position 4 (help)
  17. "PM says negotiations with troika are over". ekathimerini.com. Retrieved 2012-12-07.
  18. "FinMin says austerity package will go to Parliament next week". ekathimerini.com. Retrieved 2012-12-07.
  19. "Democratic Left 'not in agreement' with troika talks". ekathimerini.com. Retrieved 2012-12-07.
  20. "Coalition faces new test". ekathimerini.com. Retrieved 2012-12-07.
  21. "Greece prepares second wave of privatizations". ekathimerini.com. Retrieved 2012-12-07.
  22. "Gov't fails in bid to merge social security funds but privatization bill passed". ekathimerini.com. Retrieved 2012-12-07.
  23. "Greek journalists to strike on Monday over social security reforms". ekathimerini.com. Retrieved 2012-12-07.
  24. "Eurozone portal – Statement by the Eurogroup President Jean-Claude Juncker". Eurozone.europa.eu. 31 October 2012. Retrieved 2012-12-07.
  25. "Greece outlines new austerity as debt load rises". Kathimerini (English edition). 1 November 2012. Retrieved 5 November 2012.
  26. "Front-loaded plan banking on extension from creditors". ekathimerini.com. Retrieved 2012-12-07.
  27. "Road map to facilitate export system". ekathimerini.com. Retrieved 2012-12-07.
  28. "Greek labor unions call general strike for November 6 and 7". ekathimerini.com. Retrieved 2012-12-07.
  29. 1 2 "Finance minister 'fairly confident' regarding crucial vote". ekathimerini.com. Retrieved 2012-12-07.
  30. "Greek MPs start debate on new measures ahead of Wednesday's decisive vote". Kathimerini (English edition). 6 November 2012. Retrieved 6 November 2012.
  31. "Greek Parliament passes new austerity package with tiny majority". Kathimerini (English edition). 8 November 2012. Retrieved 8 November 2012.
  32. "Ναι" στο πολυνομοσχέδιο από τη Βουλή (in Greek). Kathimerini. 8 November 2012. Retrieved 8 November 2012.
  33. "Juncker calls extra Eurogroup next week on Greece". ekathimerini.com. Retrieved 2012-12-07.
  34. "PASOK MP Androulakis quits PASOK, which loses seventh deputy". Kathimerini (English edition). 8 November 2012. Retrieved 10 November 2012.
  35. "Upheaval in coalition parties after departures". Kathimerini (English edition). 8 November 2012. Retrieved 10 November 2012.
  36. "Greek coalition wins budget vote comfortably, waits for loan tranche". Kathimerini (English edition). 12 November 2012. Retrieved 12 November 2012.
  37. "Troika report (Draft version 11 November 2012)" (PDF). European Commission. 11 November 2012. Retrieved 12 November 2012.
  38. "Debate over buyback, OSI heating up". ekathimerini.com. Retrieved 2012-12-07.
  39. "German Finance Ministry mulls debt buy-back for Greece, says report". ekathimerini.com. Retrieved 2012-12-07.
  40. "Crucial Greek vote breathes life into bond trade". Kathimerini (English edition). 7 November 2012. Retrieved 7 November 2012.
  41. "Konservative und Sozialisten dafür". ORF online (Vienna: ORF). 8 November 2012. Retrieved 8 November 2012.
  42. 1 2 Phillip Inman (7 November 2012). "Greek parliament narrowly approves €13.5bn austerity package after mass protests – as it happened". Economics blog (London: guardian.co.uk). Retrieved 8 November 2012.
  43. "Greek Cliff: Athens Lawmakers Pass New Austerity Bill In 11th Hour". Worldcrunch (Worldcrunch.com). 8 November 2012. Retrieved 8 November 2012.
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