ATHENS (Reuters) - Greece failed to clinch political agreement on a plan to save nearly 12 billion euros over the next two years, in a setback to its efforts to convince visiting EU and IMF inspectors it deserves to be kept in the euro zone.
After days of wrangling, the new conservative-led government said it had hammered out the austerity cuts hours before top officials from its foreign lenders began meetings on Thursday to assess Greece’s compliance with the terms of its latest bailout.
But the savings — expected from everything including cuts to welfare benefits, pensions and rents on ministry buildings — failed to win the blessing of Prime Minister Antonis Samaras’s allies, the Socialists and the small Democratic Left party.
“We’re not done. We will continue working on all issues,” Democratic Left leader Fotis Kouvelis said after a three-hour meeting of party leaders. “We face a difficult reality. We are fighting to find solutions.”
The talks between the three leaders on the 11.7 billion euros in savings for 2013 and 2014 promised under its latest rescue plan is set to resume on Monday. All three are eager to show they have fought to reduce the pain of the cuts on Greeks.
Near-bankrupt Greece is waging an uphill battle to convince sceptical lenders it merits further aid despite a history of failed pledges to reform and hit targets under two bailouts from the European Union and International Monetary Fund.
In his first visit to the near-bankrupt country in three years, European Commission President Jose Manuel Barroso offered a public show of support to Samaras but accompanied that with a warning that Greece must come good on promises to reform.
“The key word here is deliver. Deliver, deliver, deliver!” Barroso said, adding he was convinced Samaras’s government would do so. “Greece should stay in the euro as long as commitments made are being honoured.”
A conservative victory in last month’s election averted the imminent risk of a Greek euro zone exit, but speculation of that has intensified once again amid the realization that the country is way off track in meeting the terms of its latest bailout.
The chances of Greece leaving the euro in the next 12-18 months have risen to about 90 percent and Athens is most likely to quit the single currency within the next two to three quarters, U.S. bank Citi said in a report.
In more bad news for Greece, ECB data released on Thursday showed deposits at Greek banks hit their lowest level in six years in June as savers worried about the country exiting the euro zone pulled their money out.
Euro zone partners are keen to avoid a Greek exit that drags down bigger crisis-hit nations like Spain and Italy, but also face the growing reality of a third bill and debt restructuring to save Greece that they cannot afford.
Samaras’s government, facing a juggling act of its own as it tries to reconcile opposing demands from home and abroad, is hoping Greece can win back lost credibility by reforming its bloated public sector and restarting its privatisation drive.
But it has faced resistance from its own ranks as well as from unions and an emboldened opposition as it has tried to identify the 11.7 billion euros worth of cuts promised under its bailout, which are set to heap more misery on the long-suffering Greek people.
About 5 billion euros of those cuts will come from areas overseen by the labour ministry, including pensions and welfare benefits - a difficult move for Samaras who campaigned on a pledge to renegotiate the bailout to lessen the burden on Greeks.
But with Greece set to run out of cash in a few weeks without further support from its lenders, Samaras’s government has found its hands tied. It has already been forced to put its request for an additional two years to hit debt targets on the backburner until it can claw back lost credibility.
“What we want is clear: an extension of the fiscal adjustment programme. We always bring up this issue and we did so again today,” the Greek official said after Thursday’s talks.
“They made clear that they want us to implement everything the government committed to in March.”
The remaining cuts will be spread out across various ministries, including a big chunk from the health ministry.
The troika is due to wrap up its visit in early August but is not expected to finalize its assessment of Greece’s progress until September. The IMF said part of its work in Athens would include assessing whether Greece’s debt levels are sustainable.
Additional reporting by Renee Maltezou and Karolina Tagaris, Writing by Deepa Babington; Editing by Hugh Lawson, Ron Askew