Lead negotiators are set to return to Athens early next week in the clearest sign yet they will soon agree an €8bn aid payment to the debt-ridden country after Evangelos Venizelos, the Greek finance minister held a conference call with the so-called troika debating funding for Greece.
The European Commission said that it had together with the International Monetary Fund, and the European Central Bank made “good progress” with Athens in a teleconference late on Tuesday aimed at reaching an agreement over measures to allow the release of the next bail-out tranche to Greece.
George Papandreou, the Greek prime minister, is holding a cabinet meeting on Wednesday to accelerate budget cuts to satisfy the troika. Mr Venizelos told lawmakers ahead of the meeting that the country needed to take additional austerity measures.
The full troika mission is expected to come back to Athens early next week to resume the review, almost three weeks after leaving the Greek capital.
The Greek finance ministry said in a statement that satisfactory progress had been made. It added that technical discussions concerning the 2011 and 2012 budgets, as well as the 2013-2014 period, would continue in Athens in coming days.
Discussions will also continue this weekend at the annual IMF meeting in which Mr Venizelos is taking part, the ministry said.
Greece does not face an imminent risk of default since it has no major bond redemptions due in coming weeks but may have difficulties paying full salaries to civil servants and pensions if it does not get the €8bn tranche. It is estimated the state will run out of money around mid-October. It is noted it already owes more than €6bn to private companies and individuals.
Athens will have to cut thousands of the public sector workers that have been a core part of the ruling socialist party’s base in order to secure the international loan payment it needs to pay its bills by October 10.
The fate of public workers has been a central issue in high-stakes talks this week between Mr Venizelos and representatives from the troika overseeing the €109bn bail-out granted to Athens last year.
European markets rallied on Tuesday after Mr Venizelos reported that the conference call had been “productive,” suggesting the two sides were nearing an agreement.
There were also indications that the eurozone’s wider response to the debt crisis could be gathering speed.
Olivier Blanchard, the IMF chief economist, suggested that European governments were warming to the idea of bank capital increases, using public funds if necessary. “It seems to me there’s been a 180-degree change in a lot of countries,” he told France24 television.
Meanwhile, fears receded that the collapse of the government in Slovenia on Tuesday could hamper ratification of crucial enhancements to the eurozone’s rescue fund. A committee of legislators approved the changes and the full Slovenian parliament was expected to vote on them on Tuesday.
The hard line being taken by Greece’s creditors is a reflection of impatience in Germany and the Netherlands where the bail-outs remain deeply unpopular with voters. The IMF has indicated it would not send Poul Thomsen, its mission chief, back to Athens before Greece committed to adequate new austerity measures.
To convince them to go ahead with the payment, Greece is being asked to sack some of the estimated 20,000 to 25,000 workers hired by the government since 2010, according to people briefed on the talks. Thousands of public workers could also be forced into a pool where they are paid only 60 per cent of their salary, pending review.
The focus on government workers marks a shift in the discussions from tax increases to spending cuts as the best way to close a fiscal gap that has widened because of a deeper-than-forecast recession.
The troika may have made that calculation out of frustration at Greece’s inability to collect taxes, suggesting that any new measures would be difficult to implement even if they could be pushed through a reluctant parliament.
“Our primary target is to shrink the state,” deputy government spokesman Angelos Tolkas said on NET radio. “The Greek state budget has stopped paying the wages of some 200,000 civil servants in the last two years. And we are continuing.”
Yet thinning the ranks of Greece’s public workers is also problematic because they constitute one of the ruling Pasok’s party’s strongest pillars of support. They have used their muscle to soften previous reform attempts.
Earlier on Tuesday Mr Venizelos shot down rumours that the government was considering a referendum on the country’s future in the eurozone. “Greece’s participation in the Eurozone and the euro is an irrevocable and fundamental national choice which the Greek people guard with sacrifices because he knows how important it is,” he said.
Additional reporting by Neil MacDonald in Belgrade
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