Greece's future within the eurozone depends on whether prime minister Antonis Samaras can convince European leaders that the country deserves its next loan installment of €31.5bn.
Samaras will first meet with Jean-Claude Juncker on Wednesday, then visit Merkel and Hollande later this week to discuss the proposed budget cuts.
According to the Financial Times, the Greek government has come up with a proposal to reduce net expenditures by €11.6bn within the next two years. To appease its European creditors, Greece is to have a budget surplus of €3.6bn by 2013 and €9.5bn by 2014. In order to reach these targets, however, the the country's spending cuts will have to offset lower tax revenues and higher social benefits payments resultant from an ever-shrinking GDP and increased unemployment. This means that Greece will have to slash €15bn in expenditures until 2014. Amid fears of social turmoil and an increasingly crippled economy,Samaras is reluctant to accept the two year deadline and hopes to extend the cuts over four years, until 2016. The BBC quotes the Bild:
"Let me be very explicit: we demand no additional money. We stand by our commitments. But we have to kick-start growth in order to cut our deficit. All that we want is a little 'breathing space' to revive the economy quickly and raise state income."
Citing a 20 per cent drop in GDP and a 23 per cent increase in unemployment in the past five years, government officials hold that the tight deadlines will push the country into even more precipitous decline, with a two year extension at least softening the blow. Yet the Greeks have made it clear that draconian austerity is preferable to an exit, and will likely yield to Merkel and co.'s demands, if push comes to shove.
Greek academics have accused Samaras of undue optimism, pointing to the clear shortcomings of a plan that hopes to take a bigger slice of a smaller pie to pay back debt. Recent empirical evidence from the UK's own fiscal woes seems to back this up.
Here's to hoping that Europeans will reconsider their notions of economic health this week.