GREECE was bracing itself yesterday as the government pledged to take tough action to avoid default following an emergency cabinet meeting.
Prime Minister George Papandreou cancelled a visit to the US to hold the meeting, a day before EU and International Monetary Fund inspectors hold a conference call with finance minister Evangelos Venizelos to hear how Greece will plug this year’s budget shortfall.
But Papandreou did not announce any specific new austerity measures last night that some had expected as part of the conditions attached to the next tranche of Greece’s bailout.
The €8bn (£6.96bn) loan installment forms part of a €110bn bailout secured last year, which Greece needs by October before it runs out of money.
Paymaster nation Germany yesterday exerted pressure on Greece to face up to its financial responsibilities.
German finance minister Wolfgang Schaeuble told Bild am Sonntag: “Membership in a monetary union is an opportunity, but also a heavy burden. Measures for alignment are very difficult. The Greeks must decide whether they want to bear this burden.”
He added that Greece must prove it is living up to its existing austerity plan before the IMF loan will be released.
Reports in Greek newspapers claimed that the government has offered to cut 20,000 more public sector jobs in order to get its hands on the next payment.
But as Greece’s finances headed towards dire straits, Germany voted to move towards the political left.
Germany’s Social Democrats beat Chancellor Angela Merkel’s conservatives in a regional vote in Berlin yesterday, handing Merkel her sixth election defeat this year ahead of a key Eurozone vote in parliament in two weeks’ time.
Merkel’s centre-right coalition suffered a further setback when their junior coalition partners at the national level, the Free Democrats, failed to clear the five per cent threshold needed to win seats – for the fifth time this year.
Their eroding support could destabilise Merkel’s coalition, analysts warned.
The G20 is due to meet on Thursday and Friday in a bid to stop the burgeoning debt crisis centred around Greece spilling out to imperil banks around the world.