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Surprises in Greece never end, and scenarios for the level of deficit in late 2011 have started to change every week. The new findings of the supervisory Troika, comprising the International Monetary Fund, the European Central Bank and the European Commission, are that the Greek budget deficit would be at least 9.1% of GDP, instead of 8.5% of GDP as stated at the end of September. This year’s goals to reduce the deficit to 7.5% of GDP now seem distant and more unrealistic.

The permanent deviations are due apparently to the inefficiency of the Greek government, which is not able to implement the fiscal consolidation measures and the structural reforms quickly enough so as to anticipate the consequences of the recession and to align costs to revenue in line with the targets set in the austerity plan. The ruling PASOK party is focussing more on revenue from higher taxes and charges, with which ordinary Greeks cannot keep up. At the same time, little is being done to reduce the public sector and related costs, which are the main source of the problem. The privatization programme has stuck for more than a year and Roland Berger’s six-staged Eureka plan does not have much support in Greece.

The fifth mission of the supervisors is over and the heads of the Troika have agreed that decisive measures amounting to € 10 billion would have to be taken for the period 2011-2014. The exact nature of the measures is still unknown, but their effectiveness is more than doubtful, given the Greek government's inability to handle the tasks set so far. At the same time, the sustainability of the foreign debt is decreasing as its size is approaching 160% of GDP, while the maximum rate for its management in the euro area does not exceed 130% of GDP. This has made the Commissioner for Economic Affairs in the European Union, Olli Rehn, openly acknowledge for the first time that most probably, the value of Greek government bonds would be haircut by more than 21% as agreed at the European leaders’ summit in late July this year. "I do not exclude debt reduction. It should be known that it is not just a forceful haircut of Greek obligations," he said to the Austrian television station ORF. Rehn stressed that measures should be taken to prevent the problem from spreading to the rest of the euro zone.

The whole mess with the Greek crisis and European hesitation led to the postponement of the October summit of the European leaders scheduled for October 23 this year when the fifth report of the Troika for the implementation of the Greek rescue programme was due to be released. Many analysts link the payment of the sixth tranche of the aid with the introduction of the new pan-European programme for solving the debt crisis in the area. Asked whether Greek debt would be reduced by 50-60%, Rehn said that EU leaders would continue to discuss the situation in Greece, without giving a specific answer. He added that the topic would be negotiated during the next meeting in Brussels and he refused to comment on various scenarios.
 
By the time the decisions of the Brussels summit are taken, the Greek government will be facing the challenge of putting pressure on public organizations to reconsider the idea of the national collective agreement, which has set the minimum wage until now. The Troika has advised the government to abolish this measure, because in times of recession, revaluating the wages based on inflation rate does not contribute to keeping jobs, not to mention creating new ones. Meanwhile, the National Institute of Statistics has announced that inflation is 3.1 per cent - an unusually high rate for a period, when the direct incomes of working people are reduced. Economists attribute this to the size of the informal economy, which "pumps" resources on the market, but has no direct effect on government revenue. The problem continues to lie not in the minimum wage but in the average wage, which is determined by a number of supplements, experts commented.

Whatever measures are taken to reduce labour costs in the private sector, competitiveness will not significantly improve until the way in which the government operates changes and the laws passed by parliament are put into practice. The Troika calls for accelerating the privatization process and for further cuts in public sector spending. This could be achieved either by increasing the number of civil servants who will enter the labour reserve, or by resorting to direct layoffs in public enterprises planned for closure. In addition, supervisors urge the government to include in the payroll table the employees in public companies that offer utilities, such as the national electric company, water supply companies in big cities, the national postal service and state-owned refineries.