The Greek crisis erupted back into life yesterday after the eurozone suspended debt relief measures to punish the country’s left-wing government for defying EU austerity with new spending plans.
Greek shares fell more than 3 per cent as eurozone finance ministers abandoned plans to cut Greece’s short-term borrowing costs. It came after Alexis Tsipras, the Greek prime minister, announced this week that his government would use a larger than expected budgetary surplus this year to help low-paid pensioners. Greece had secured support for an international bailout by pledging to cut spending.
“The institutions have concluded that the actions of the Greek government appear to not be in line with our agreements,” a eurozone spokesman said. “Some member states see it this way also and thus no unanimity now for implementing the short term debt measures.”
Mr Tsipras is due to fly to Berlin tomorrow for urgent talks with Angela Merkel, the German chancellor, as the eurozone faces a difficult new year amid a looming Italian banking and debt crisis as well as the long-running problems in Greece. The suspended short-term debt relief measures aimed to help Greece cut its debt burden by a fifth over the next 44 years. The country’s third bailout is worth €86 billion.
Greece estimates this year’s primary budget surplus reached 1.1 per cent of economic output, outstripping the eurozone’s target of 0.5 per cent, after a series of unpopular austerity measures demanded by the EU, regarded by many Greeks as a national humiliation.
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During a visit to the Greek island of Nisyros on Tuesday, Mr Tsipras said he would use surplus cash to scrap plans for an increase in sales tax for a host of Aegean islands inundated by more than 15,000 asylum seekers.
The tax rise, which was a key austerity demand from the eurozone, came into effect this year for the whole country, apart from the five islands where it was due to be introduced on January 1.
The eurozone decision comes amid a deepening row between the EU and the International Monetary Fund over the size of the fiscal surplus targets set as the conditions for bailout payments that Greece needs to prevent bankruptcy in the first half of 2017.
The IMF is at loggerheads with the eurozone over whether Greece can meet a fiscal target of a 3.5 per cent budget surplus in 2018, an objective the IMF thinks is unrealistic unless the Greek government commits to stepping up austerity. With eight in ten Greeks disappointed with Mr Tsipras’s failure to fight austerity, and rival conservatives ahead in opinion polls, the pressure is building on him to call a snap election unless he wins concessions in Berlin.
Mrs Merkel is not inclined to help Greece because she is fighting difficult elections herself next autumn in a country resentful over the bailout of Greece.
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The impasse means the eurozone faces a new Greek crisis in January, with a possible snap poll adding to dangerous elections for the EU expected in the Netherlands, France, Italy, Germany and Austria during the course of 2017.