September 19, 2011 7:13 pm

Crisis heads towards another nail-biter

Just three months after a late-night vote in the Greek parliament sent waves of relief through the global economy as Athens narrowly avoided defaulting on its sovereign debt, it appears Europe is preparing for another nail-biter.

The decision by the European Union and the International Monetary Fund to hold off sending lead negotiators back to Athens to finalise an €8bn aid payment – needed in just three weeks – is the most visible sign of hardening on whether Greece has done enough to warrant international assistance.

The stakes may be lower this time around, though only marginally. In July Athens faced a €6bn bond payment that, if missed, would have wreaked havoc for European banks and global financial markets. This time, while no big bond payment is imminent, Greece faces the prospect of being unable to make payroll and pension payments by October 10 without the cash.

Without the money the already tense standoff in Greece would undoubtedly get worse. In a sign of the growing tensions, Evangelos Venizelos, the Greek finance minister, issued a stinging rebuke of international critics ahead of a conference call with the EU and IMF in which he accused them of being complicit in Greece’s problems.

“We should not be the scapegoat or the easy excuse that will be used by European and international institutions in order to hide their own lack of competence to manage the crisis,” Mr Venizelos wrote.

Senior European officials had hoped to send lead negotiators – who quit Athens earlier this month amid differences over whether Greece was properly implementing previously agreed austerity measures – back to the country last week.

But a German-led group of creditor nations, including the Netherlands and Austria, insisted on more concrete evidence that Athens was living up to its promises, leading to the current standoff that officials now believe will not be resolved until early October. at

Similarly, the IMF does not want to send Poul Thomsen, head of its Greek mission, back to Athens until it is assured Greece has taken the necessary steps to warrant the next payment. European officials have been concerned that divisions with the IMF, which were largely papered over during the tenure of former IMF chief Dominique Strauss-Kahn, have begun to re-emerge.

Instead of negotiating the new measures in Athens, Greek officials presented them in a conference call to the three mission leaders in Washington, Frankfurt and Brussels.

“Greece is still well away from the critical mass of reforms needed to transform the investment climate and to give a boost to the economy,” Bob Traa, the senior IMF official now in Greece, said at a conference in Athens. “Additional measures will be needed as we go forward in order to reduce the deficit to a sustainable level. This points to an important issue.”

Greece last week proposed a property tax that it said would raise €2bn in revenue this year, closing a €1.7bn gap in the 2011 budget and helping close a €4bn hole in next year’s budget. That proposal has not swayed international lenders, however.

As part of the additional measures, the Greek government is expected to propose accelerating an increase in a special consumption tax on heating oil, matching one on petrol, instead of raising it gradually over the next few years. It may also cut pensions and salaries for workers in state utilities.

The package will include more public sector layoffs, including at least 20,000 workers hired by the government since the start of last year..

Additional reporting by Dimitris Kontogiannis in Athens

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