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Europe
Greek PM cancels US trip over debt crisis
Finance minister downplays the cancelled trip, dismisses default talk as ridiculous after Eurozone holds out on bailout.
Last Modified: 18 Sep 2011 00:50

Greek prime minister George Papandreou has cancelled a planned visit to the United States to deal with a deepening crisis at home, days before international inspectors arrive to go over fiscal shortfalls.

Papandreou was in London, en-route to attend United Nations and IMF meetings, when he decided to turn back after discussing developments with his Finance Minister Evangelos Venizelos, government officials said.

Venizelos rushed to allay fears the cancelled trip signalled imminent default: "The comments and analyses about an imminent default or bankruptcy are not only irresponsible but also ridiculous," he said in a statement. 

Al Jazeera's Nadim Baba reporting from Athens says that many don’t believe that anything the government can come up with will work – for two reasons:

"Firstly, they don't believe anything substantial is being done to stimulate the economy and to get people to start spending again.

"And secondly, they don't believe that Greeks on the street have the money to pay additional taxes such as the new proposed property tax on home owners.

"Some people even politicians – albeit in private – believe that the country is heading for another, slow default and that it might be in the country’s best interest to declare that interest now," our reporter said.

Papandreou will be eager not offend voters who have already taken to protest against the country's financial mis-management.

"The prime minister judged that he should not be away. He wants to ensure that all of Greece's commitments (to its European Union partners) are fulfilled," government spokesman Ilias Mossialos told Reuters.

A government official speaking on condition of anonymity told Reuters, pressure was high on Athens from euro zone partners to take additional measures to merit continued funding from a $150 billion bailout to avert default.

"There is an issue of trust. Our partners want very specific steps and commitments and our record so far unfortunately does not inspire confidence," said the official.

Next week, Greece is due to resume talks with EU and International Monetary Fund inspectors who will judge fiscal progress before releasing the next $11 billion loan tranche in October. Greece has said it has cash until next month.

"It's a sign that things are very tight. Papandreou's presence is crucial to make sure there are no setbacks with issues that need to be resolved," said Theodore Krintas, head of wealth management at Attica Bank.

Measures not enough

Fiscal slippage this year, which the government blamed on a deeper-than-projected recession, forced the government to slap a levy on property to make up for the shortfall as a target of capping its budget deficit at 7.6 per cent of gross domestic product looked out of reach.

Lenders have long warned against one-off measures and more growth-stifling taxes as a way out of the crisis shaking the euro. They have asked for urgent reforms and privatisations and a drastic shrinking of the bloated public sector.

EU economic and monetary affairs Commissioner Olli Rehn has said inspectors from the European Central Bank, European Union and IMF would report back on progress in early October, meaning that the next disbursement of aid to Greece could be paid by mid-October.

Apart from the slow pace of reforms and fiscal slippages, lenders remain also concerned with the lack of political consensus as the main conservative opposition New Democracy party insists on the renegotiation of the bailout deal.

Opinion polls show New Democracy ahead of the ruling socialists as a public exasperated with two years of austerity resists further measures and snap elections are on the horizon.

A second $150 billion bailout agreed in July, after it became clear Greece would not be able to return to bond markets, has also hit snags.

Partners are asking for collateral before giving Athens more cash and banks are slow to participate in the bond swap scheme.

Papandreou was to meet United Nations General Secretary Ban Ki Moon in New York on Sunday and IMF head Christine Lagarde on Tuesday.

Venizelos is still due to attend an IMF meeting in Washington later in the week.

Source:
Al Jazeera and agencies
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