We Made Mistakes, Admits Greek Finance Minister

Greece is unlikely to return to the international capital markets before next year and will use funds from its international 110 billion euros ($143 billion) emergency rescue package to finance its debt in the meantime, its finance minister said.

George Papaconstantinou told the Financial Times: “The whole idea of the program is to shield you, but [also] help you return to markets as soon as possible, so we’re hoping that next year we’ll be doing that.”

“It’s unlikely this year,” he said, adding that “the amount available to us is such that we don’t have to go back to the markets until the first quarter of 2012”.

He spoke as thousands of striking public sector workers protested outside parliament, where deputies were debating an austerity  program  agreed in return for the bail-out by eurozone partners and the International Monetary Fund.

According to IMF officials, Greece needs to spend about 150 billion over the next three years to refinance debt, make repayments and cover interest costs.

Sustained pressure from financial markets has forced Greece to become the first member of the eurozone to seek this help from the IMF to avert a sovereign default.

Macduff Everton | Ironica | Getty Images

The decision marked a humiliating climbdown by the socialist government of George Papandreou, prime minister, which had already launched three earlier fiscal packages and pledged to accelerate structural reforms.

“We made mistakes,” Mr Papaconstantinou admitted. But he insisted the new front-loaded package showed “one, our absolute determination to tackle this and, secondly, to get out of the recession earlier”.

Both right- and leftwing Greeks put most of the blame for the soaring deficit and public debt on the previous conservative government, which hired about 100,000 additional civil servants and boosted public spending by more than 20 billion during five years in office.

But Greek society is also assessing the need for drastic changes in the political system, Mr Papaconstantinou said.

“People are looking intensely at what went wrong, how we got to this point. It’s overwhelmingly a problem of the [conservative] opposition, but we’re not innocent – we also governed for a very long time,” he said, referring to the socialist administrations of the 1980s and 1990s which filled the ranks of the public sector with their own supporters.

The new measures will plunge Greece deeper into recession, with the economy set to contract by about 4 percent this year and another 2.6 percent next year before growth turns positive in 2012.

Reforms of the tax and pension systems, with the opening up of labor markets are intended to reduce the role of the bloated public sector and free up resources for growth, Mr Papaconstantinou said.

“The public sector is dragging down the economy and not allowing it to flourish,” he said.

But further cuts in public sector wages and pensions, due to take effect this month, along with another increase in value-added tax – the second this year – have already triggered a fierce backlash.

Following the launch of the EU-IMF program, the government is stepping up a campaign against tax evasion and corrupt practices in an attempt to deflect popular anger over the country’s economic predicament. The finance ministry has accelerated procedures for tax audits and  the  opening of accounts held at Greek banks by suspected tax evaders.

“There’s a very strong current of feeling among the population, that we should put some people in jail, that we should go after those lawyers and doctors who don’t pay taxes, go after corrupt politicians,” Mr Papaconstantinou said.

He cited the case of 200 doctors in the upmarket Kolonaki district of Athens who declared annual incomes of less than 25,000 euros who have been under investigation for tax evasion.

“Now all of these people have been properly audited, their bank accounts have been opened and about 20 to 30 will be prosecuted,” he said.