Greece defied its creditors yesterday as it refused to agree to €3.6 billion in extra savings to meet an IMF order to set up a contingency scheme in the event that the cash-strapped country fails to meet its fiscal targets.
Greece’s rejection, voiced by one of the prime minister’s closest aides, signalled growing resistance by the hard-left government to creditors’ demands for further brutal budget cuts.
The Greek economy is sinking deeper into a fiscal depression that has wiped out a quarter of the national output, about 200,000 businesses and more than 1.2 million jobs, since 2010.
“We have made it clear to our partners that this cannot be done because of procedural and substantive reasons,” Dimitris Vitsas, the deputy defence minister, said. Legislating such extraordinary measures, he explained, was not provided for by the constitution.
Greece and its creditors — the IMF, eurozone lenders and the European Central Bank — are close to sealing a deal on €5.4 billion in budget cuts as part of an €86 billion bailout that Athens agreed to last summer.
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Athens has yet to receive any of that loan because neither its eurozone lenders nor the IMF believe that the government of Alexis Tsipras will deliver on the promised cuts, including pensions and income tax reforms.
Creditors want Mr Tsipras to push through €3.6 billion in additional “contigency measures” to kick in if Athens fails to meet its fiscal targets. They also want there to be a primary budget surplus of 3.5 per cent of gross domestic product from 2018 onwards.
Without fresh financial support Greece may fail to make a debt payment due in July. It has offered to legislate an automatic mechanism of its own, allowing for spending cuts if it falls short of its goals. However, it also wants debt relief, which the IMF and European creditors have refused.