Finance ministers were due to meet on October 13 to sign off the next tranche of bailout money, which Greece had originally said it needed by mid-October, or it wouldn’t be able to pay wages. Thanks to its little announcement, though, that meeting has now been cancelled – which quite possibly means the country won’t get its next loan until November. Jean-Claude Juncker, the chairman of a meeting of finance ministers in Luxembourg, was quick to reassure that it would be fine until then. Although he also ruled out the possibility of a default by Greece, which is widely accepted to be inevitable. So Juncker might be living in his own world…
Default or not, though, what’s essential (in the eyes of the EU ‘Troika’ – the holy trinity of the IMF, the EU and the European Central Bank) is that Greece now sticks to drastic new austerity measures, which it introduced on Sunday. That includes consigning 30,000 civil servants to ‘labour reserve’ by the end of 2011, meaning they’ll be on partial pay, with quite a high chance that they’ll be made redundant.
Obviously, that hasn’t proved terribly popular among Greece’s citizens, who claim such harsh austerity measures prevent growth. But the Greek finance ministry is adamant: ‘The final estimate of 8.5% of GDP deficit can be achieved [by the end of 2011] if the state mechanism and citizens respond accordingly,’ it said. We’re sure it’ll be fine – with a record of fiscal rectitude like theirs, what could possibly go wrong?
Obviously, the ones who’ll be keeping their fingers crossed for a positive outcome (apart from Greeks. And Germans. And the IMF. And George Osborne…) will be banks, which have been hit particularly hard by the news. French banks were among the big fallers, with shares in Societe Generale falling by 7%, while BNP Paribas dropped by 6.3%. In Germany, Commerzbank dropped by almost 6%, while Lloyds fell by more than 4%.
Arguably the worst-hit, though, is Dexia: thanks to its above-average exposure to Greek debt, the Franco-Belgian bank could become the first casualty of the impending Greek tragedy. The bank, which is heavily involved in several UK Private Finance Initiative projects, including widening the M25, admitted late last night that it would need major restructuring which would, in all likelihoods, culminate in a hefty bailout. The good (ish) news is that the French and Belgian governments have already said they’ll make sure its account holders and creditors are protected. Although one diplomat has admitted Dexia could be the ‘canary in the coalmine’. Scary stuff.