Greek bailout talks bogged down over cuts

Negotiations between Greece and its international lenders over a new austerity package seen pivotal to keeping the country afloat and in the eurozone have reached a crucial point over about €2.5bn in measures.

The finance ministry says it can make the required savings from cuts in operational expenses and the restructuring of the public sector. But the troika of international lenders, especially the IMF, is unconvinced. It has asked for more wage and pension cuts, according to a person familiar with the talks.

Greece must agree spending cuts and other public sector savings of €11.5bn-€11.9bn, or 5.7 per cent of GDP as part of the second bailout agreement signed earlier this year.

The two sides have agreed on public sector wage cuts, pension and welfare benefit cuts, accounting for a good chunk of the package according to various government sources.

The package is viewed as a prerequisite for a positive review by the troika which is itself necessary to pave the way for the disbursement of the next loan tranche of €31.5bn euro to the cash strapped country.

The troika must understand there are limits

. Talk of tension between finance minister Yannis Stournaras and a member of the troika as well as strains within the coalition have fuelled rumours that talks have reached stalemate.

Fotis Kouvelis, the leader of the moderate Democratic Left party, said: “The troika must stop attacking Greek society. The troika must understand there are limits.”

But a senior finance ministry official said negotiations continued and “there was a good chance” of Greece clinching a deal with the troika by Sunday evening.

Greece is eager to have a deal as soon as possible. Evangelos Venizelos, the leader of Pasok, said negotiations should be concluded soon - but without punishing Greek society - and the measures should have been legislated before a Eurogroup meeting in early October.

The total package of Greek austerity measures will reach €13.5bn with spending cuts being supplemented by tax revenue enhancement of €2bn.

Prime Minister Antonis Samaras and other government officials have made it known they will seek a two-year extension of the fiscal adjustment from the EU so the economy in its fifth year of recession gets a breather. This would require filling the ensuing funding gap in addition to bringing the Greek public debt ratio down to 120 percent of GDP or less in 2020.