Austerity drives up suicide rate in debt-ridden Greece

Greek man: Why I set myself on fire

STORY HIGHLIGHTS

• Suicide rate in Greece jumped 40% year-on-year in first five months of 2011
• Apostolos Polyzonis set himself on fire outside his bank last year after falling into financial trouble
• Polyzonis: “I had lost my right to be a free Greek”
• Dimitris Christoulas shot himself Wednesday in central Athens during morning rush hour

(CNN) – When Apostolos Polyzonis’s bank refused to see him last September, the 55-year-old Greek businessman had just 10 euros ($13) in his pocket. Out of work and bankrupt, he thought all he could do with his remaining money was to buy a gas can.

Desperate and angry, Polyzonis stood outside the bank in central Thessaloniki, in northern Greece, doused himself in fuel and surrendered to the flames.

“At that moment, I saw my life as worthless, I really didn’t care if I was going to live or die,” recalls Polyzonis, who says he was hit by financial troubles after the bank recalled a loan given to him for his business.

“My sense of living was much lower than my sense of self-respect and pride, the fact that I had lost my right to be a free Greek,” adds Polyzonis.

Polyzonis, a father of three, was eventually saved by police. He recovered after spending seven days in hospital on life support.

Tributes for ‘debt suicide’ in Greece

Understanding ‘debt suicide’ in Greece

Greek citizens find austerity cuts ‘hard’

Why the pain of austerity is necessary

His public protest made headlines and touched a nerve with many Greeks bearing the burden of a worsening debt crisis. One in five Greeks was unemployed last year, according to Eurostat figures. Many more have suffered unprecedented hardship due to increasing pension and salary cuts.

“I don’t feel proud about it, no way, but all these situations made me lose my self-respect and feel like I’ve been deprived of my rights,” says Polyzonis, “because being able to pay your taxes is not only an obligation but also a right. People should have the possibility to pay their taxes, to pay their obligations to others, to offer the basic goods to their family so they can feel that they live with self-respect and dignity.”

Until now, Polyzonis’s self-immolation was the most vivid image of a singular public act of protest in a country that’s been shaken by anti-austerity violence.

But Greece was jolted even more Wednesday after a 77-year-old man took his own life in the busy Syntagma Square, central Athens, the scene of several violent clashes between anti-austerity protesters and the police in recent months.

Just a few hundred yards away from the Greek Parliament, retired pharmacist Dimitris Christoulas shot himself with a handgun amid the morning rush hour, in what was apparently a protest over the financial crisis gripping the nation.

Minor clashes between police and protesters followed a vigil held Wednesday night to mark his death. Up to 1,000 people gathered for another rally Thursday in Syntagma Square, which was largely peaceful apart from a few scuffles between small groups of protesters, Athens police said.

In his suicide note, Christoulas wrote that the government had made it impossible for him to survive, according to Greek state TV.

Christoulas’s death can be added to an increasing number of suicides in Greece, as more people feel hopeless amid the worst economic crisis in the country’s recent history: according to the health ministry data, the suicide rate jumped about 40% in the first five months of 2011 compared with a year earlier.

“The further we go into the crisis, the more things get ugly,” says Aris Violatzis of Klimaka, a non-governmental organization that runs a suicide helpline in Greece.

The group — Klimaka translates as “scale” — says it receives up to 100 calls a day, with three of four callers citing economic problems as their main concern. In 2007, just before Greece fell into recession, the helpline used to take 10 calls a day maximum, explains Violatzis, and only one in four callers mentioned economic issues.

“The social framework in Greece has become pathogenic — we have a morbid social environment where one of its symptoms is suicide,” he adds.

Under its second bailout program, approved last month, Greece has agreed to implement a series of austerity measures and undertake broader reforms to make its economy more competitive.

New taxes, rising unemployment and cuts to pay, pensions and social welfare provisions have brought many ordinary Greeks to their knees.

As Greece remains mired in financial woes — the country’s economy is heading for its fifth year of recession — many now fear that Christoulas’s public act of protest could find more imitators.

“I believe there are going to be more suicides and that’s what got the government worrying,” says archaeologist Despoina Koutsoumpa, who was among the hundreds who rushed yesterday in Syntagma Square to pay tributes to Christoulas.

“His act was a punch in the stomach for all of us. It made you realize that the overthrowing of these policies requires self-sacrifice, like in Tunisia and in Egypt where hundreds of people died,” Koutsoumpa, a regular at the anti-austerity demonstrations in Athens, told CNN.

“In Greece there are also hundreds of people dying because of the crisis, people we don’t see — there are suicides over debts, there are people dying in the streets because they don’t have anything to eat,” she adds.

“A lot of people here understand that there will have to be even sacrifices of people in order to get rid of the situation.”

Seven months after setting himself on fire, Polyzonis says more and more Greeks find themselves close to the desperate condition he was in last September.

“The situation is becoming every day worse,” he says. “Every day people lose their jobs, every day people are unable to pay rent for their house, the basics to find something to eat — the last step before doing what I did or what another human being yesterday did in Greece.”

Greek bailout elements in place, says France’s Baroin

Some eurozone ministers doubts Greece’s austerity pledges

All the elements are in place for agreement on a new bailout loan for Greece, the French finance minister has said, ahead of a meeting of eurozone finance ministers in Brussels.

Athens needs the 130bn euros (£110bn; $170bn) in order to avoid bankruptcy in mid-March, when a huge repayment on its governmental debt must be made.

Haggling was likely to continue “until the very last moment”, warned Greek Finance Minister Evangelis Venizelos.

This is Greece’s second bailout.

French Finance Minister Francois Baroin said Greece could not wait any longer.

Continue reading the main story

Analysis

Gavin HewittBBC Europe editor, Brussels

Here is the gamble: Ignoring the reality of a country in decline, more austerity is demanded by EU officials and finance ministers. Greece has to fire 150,000 public sector workers by 2015. The minimum wage will be cut by 22%. Pensions of more than 1,300 euros (£1,079; $1,709) a month will be cut by 12%.

It is hard to recall when such spending cuts were demanded of a country in economic freefall. The challenge for the EU is immense. It will define their reputation for years to come. Will they end up rescuing a country or breaking it?

When questioned over the strategy, Greek ministers reply by asking, “what is the alternative?” Greek ministers and European officials vividly describe the catastrophe if Greece defaults. “If there is a default,” said the German centre-right MEP Elmar Brok, “then there would be no pensions, no salaries at all. It would become a failed state.”

No-one pretends that default would be an easy option. There would be a run on the banks and, at the most elemental level, there would be the question of how soon a new drachma could be printed and distributed.

But those who oppose the new bailout package argue that Greece is not being saved from the fate of a failed state, but being pushed into one – and for years to come.

• Read Gavin’s thoughts in full

The rescue plan would also write off 100bn euros of debt, with private lenders accepting a 70% reduction in what Greece owes them.

In return, they would receive cash and new bonds, expected to mature in 30 years’ time.

Elections ahead

Mr Baroin said he would plead for the deal at Monday’s meeting of eurozone finance ministers.

“All the elements are in place… both with the bankers, private sector creditors, and public sector creditors, the states and central banks,” he told Europe 1 radio.

Mr Venizelos said he now expected the “long period of uncertainty” to end.

“The Greek people send to Europe the message that they have made, and will make, the necessary sacrifices for our country to regain its position of equality within the European family,” he said in a finance ministry statement issued in Brussels on Monday.

After five straight years of recession, Greece now has a debt greater than 160% of its Gross Domestic Product (GDP).

Eurozone leaders and the IMF said in October that Greek debt should be reduced to the more sustainable level of 120% of GDP by 2020.

Successive rounds of austerity measures, demanded by the EU, the IMF and the European Central Bank – Greece’s international creditors – have failed to restore growth and have provoked clashes between protesters and police.

The Greek government fell last year after ex-Prime Minister George Papandreou called for a referendum on the eurozone rescue package.

He was replaced by Mr Papademos, an unelected technocrat who is expected to lead Greece until parliamentary elections in April.

Measures passed by parliament last week set out 3.3bn euros’ worth of cuts to salaries and pensions, and health and defence spending.

Several thousand people protested in Athens on Sunday against further cuts agreed to by Mr Papademos’ cabinet on Saturday – but the numbers were far reduced from the tens of thousands who protested last week.

US Treasury Secretary Timothy Geithner said the US was encouraging the International Monetary Fund (IMF) to support the bailout, but it is not clear how much the IMF will contribute.

Some eurozone finance ministers doubt Greece’s commitment to its spending pledges and want strong mechanisms to ensure its debts are paid.

It is not yet clear how the eurozone intends to keep the pressure on Greece to ensure it fulfils its commitments, says the BBC’s Europe editor, Gavin Hewitt.

And, he adds, there are doubts that even with the bailout Greece will be able to reduce its debt to a sustainable level.

Funds from elsewhere may need to be found. A first rescue fund of 110bn euros in 2010 was not enough to avert the crisis.

Global Economy

• Europe struck by growth slowdown
• Germany: Reasons to be cheerful
• Q&A: Greek debt crisis
• Timeline of crisis

Shrink the eurozone to save it

Protesters march against austerity cuts Thursday in front of the Greek Parliament in Athens.

STORY HIGHLIGHTS

• Desmond Lachman: Europe’s leaders keep trying to prop up the euro currency union
• He says it will be impossible to preserve current zone in a time of austerity, no growth
• It would be smarter to create a new, smaller currency union of healthier nations, he says
• Lachman: Nations on the periphery would be able to devalue their own currencies

Editor’s note: Desmond Lachman, a resident fellow at the American Enterprise Institute, is a former deputy director of the International Monetary Fund’s Policy Development and Review Department.

(CNN) – With each passing day, Greece’s economic and political malaise deepens despite one massive International Monetary Fund-European Union bailout package after another to keep that country afloat. And with each passing day, as the Greek economy continues its downward spiral under the weight of externally imposed draconian budget austerity, there is the increased risk that a disorderly Greek euro exit could result in real contagion to the rest of the European periphery and especially to Italy, an otherwise solvent country.

This has to raise a basic question: Would not the European core countries be better served by proactively taking action now to form a smaller and more enduring currency union than the presenteurozone? And would such action not be preferable to continuing with the pretense that the euro can be preserved in its present form, which runs the real risk of a disorderly and costly unraveling of the common currency?

Sadly, the IMF and EU’s heroic, if quixotic, efforts to keep Greece afloat with a second 130 billion-euro bailout package that has now finally been agreed upon, are all too suggestive that European policymakers remain in denial that Greece will soon be forced to exit the euro.

This is all the more lamentable since there is virtually no prospect the IMF’s present prescription of further hair-shirt fiscal austerity within Greece’s euro straightjacket is going to be any more successful in stabilizing the Greek economy than was the application of the same policy prescription over the past two years.

One would have thought by now that the IMF and Europeans would have grasped how politically unsustainable is their Greek policy prescription, particularly considering that the Greek economy is now in a virtual state of collapse.

January’s European Summit also provides the strongest of evidence that European policymakers seem to have learned little from their unfortunate Greek experience. For rather than recognize that the internal and external imbalances of countries such as Greece, Portugal, Ireland and Spain have reached such large proportions that make it almost inevitable these countries will be forced both to default and to exit the euro, European policymakers are striving to preserve the euro very much unchanged in its present form.

They are doing so by proposing that all countries should adopt constitutional balanced budget amendments and sign up to legally binding budget-deficit reduction programs that are to be externally monitored. It is supposed that after several years, once the desired degree of deficit reduction is eventually attained, the present monetary union could move toward a full fiscal union that would provide the firmest of underpinnings to the existing currency union.

The fly in the ointment is that to reduce the large public-sector imbalances in the European periphery would require the early restoration of economic growth in those countries.

However, the severe public-sector belt-tightening across all euro-member countries (within the constraints of euro membership that precludes currency devaluation as a way to boost exports) is a sure recipe for a deep and prolonged European recession. And as Greece’s experience over the past 18 months would attest, a deepening economic recession puts deficit-reduction targets well out of reach, increases a country’s public-debt service burden and heightens political opposition to staying the austerity course.

The futility of excessive budget austerity in a fixed exchange rate system is especially the case when one considers the overall European economy is already showing signs of considerable weakness and when the envisaged degree of budget tightening is extraordinarily large. It is for example being proposed that Italy undertake budget cuts and revenue increases amounting to nearly 2 percentage points of gross domestic product a year in each of the next two years, while for Greece, Ireland, Portugal and Spain the proposed budget adjustment is more on the order of 3 percentage points of GDP a year in 2012 and 2013.

At the best of times, attempting to apply multiyear budget adjustment of such a large scale would run the risk of a prolonged and deep economic recession. However, these are not the best of times in Europe given a weak external economic environment and the likelihood of a European credit crunch over the next year as European banks sell assets and restrict credit in an attempt to strengthen their balance-sheet positions.

As if to underline the futility of severe budget tightening in a fixed exchange rate system, for the year ahead the IMF is forecasting a serious deepening in the European periphery’s recession. The most disturbing aspect of the IMF’s latest economic forecast is that Italy and Spain, Europe’s third- and fourth-largest economies, are both expected to shrink by around 2% in 2012. This is almost certain to cause large budget-deficit overruns in both of these countries and to raise questions anew in the markets about these two countries’ debt sustainability.

Against this background of a slow-motion European train wreck one has to wonder whether Germany, France and the other north European-member countries should not avail themselves of those provisions of the Lisbon Treaty that allow countries to exit the union voluntarily. Doing so in unison would afford them the opportunity to bind themselves in a new currency union with stronger underpinnings than the current currency union, including an early move to a true fiscal union that might involve the joint issuance of euro bonds.

A significant though not insurmountable legal obstacle to the formation of a new smaller currency union among the stronger northern European economies is posed by the existing Lisbon Treaty. While that treaty provides that while countries can exit the present currency union either individually or in unison, doing so would require them to leave the EU as well. For that reason, should the core countries decide to leave the currency union in unison they would also need to approve a parallel treaty rapidly, which would provide for the maintenance among themselves of the same present trade arrangements that they have within the EU. Such a course of pre-emptive action would certainly be preferable to a disorderly breakup of the current monetary union.

Greece crisis talks over EU bailout to resume

Lucas Papademos (right) put on a brave face on Sunday, saying limited progress was achieved

Party leaders in Greece’s governing coalition are to resume crisis talks on new austerity measures.

The measures are in exchange for a 130bn-euro (£108bn; $171bn) EU bailout and a 100bn write-off of private sector debt. Athens needs the money by March to avoid a debt default.

Talks on Sunday between Greek PM Lucas Papademos and the leaders of three parties ended without agreement.

Meanwhile, the German and French leaders are due to hold talks in Paris.

Chancellor Angela Merkel and President Nicolas Sarkozy – who have worked closely on resolving the eurozone debt crisis – will take part in a joint Franco-German cabinet session in the French capital.

Investors reacted cautiously to the latest developments. The euro fell 0.7 cents, just over 0.5% against the dollar to 1.307 in early trading.

‘Unable to bear’

Many Greeks have been hit hard by austerity measures

Mr Papademos had hoped to reach a deal with the leaders by Sunday night – but the talks ended without agreement on the painful reforms demanded by the EU and also the International Monetary Fund (IMF).

“Political leaders should give a response in principle tomorrow [Monday] afternoon,” Socialist Party (Pasok) spokesman Panos Beglitis told Reuters news agency.

The leaders of the other two parties in the coalition said after the end of Sunday’s talks that they were still opposed to further austerity measures.

“I am not going to contribute to a revolution that will humiliate us and that will burn Europe”, said Giorgos Karatzaferis, leader of the far-right Laos party.

Continue reading the main story

“Start Quote

A date is approaching, however, when – if there isn’t a deal – Greece faces bankruptcy. On 20 March Greece has to find 14bn euros (£12bn; $18bn) to service its debts. As things stand it does not have the funds.”

Gavin Hewitt BBC Europe editor

• The Greek Marathon

Antonis Samaras, leader of the conservative New Democracy party, said the country was “being asked for more austerity, which it is unable to bear,” AFP reports.

However, the BBC’s Mark Lowen in Athens reports that Mr Papademos’s office has put out a statement saying some agreement was reached on the reduction of public spending by 1.5% of GDP, and on bank recapitalisation.

But there was no deal on cuts to the minimum wage or to holiday bonuses, he said.

If there is no agreement, then Greece’s international loan will be blocked and the country would be staring default in the face – something that could send shockwaves through the global economy, our correspondent adds.

Athens faces loan repayments to private lenders of 14.4bn euros on 20 March.

Eurozone ministers had hoped to meet on Monday to finalise the bailout – Greece’s second – but that meeting had already been cancelled.

High stakes

Continue reading the main story

Analysis

Mark Lowen BBC News, Athens

Greeks have lived with austerity for much of the last two years and the country is now in its fifth straight year of recession. Unemployment is nudging 20%, businesses are closing and homelessness is increasing.

Two of the three party leaders in the coalition say they are still resistant to the new austerity measures. They fear that they could be stabbing themselves in the back just weeks before possible early elections in the spring.

The cost of failure would be extremely high. If Greece does not reach agreement on these EU and IMF proposals, it could be staring default in the face within weeks. That could send fresh shockwaves through the global economy.

EU officials have expressed frustration with Greece over delays in backing the terms of the latest rescue package.

Reforms that international lenders want to see include a lower minimum wage, the removal of a “13th and 14th month” extra salary which is paid to workers as an annual bonus, and the liberalisation of workplace regulations.

Opponents say that more cuts will worsen living conditions which have already been affected by two years of austerity measures.

Unless Greece promises to implement reforms, the eurozone ministers say Greece will not be able to go ahead with a plan to restructure its privately-held debt.

Greece has prepared a debt plan with private creditors to halve the value of Greek debt and in return receive new, 30-year bonds with an average interest rate of less than 4%.

The restructuring is to help cut Greek debt to 120% of GDP in 2020 from 160% now.

Continue reading the main story

Global Economy

• Why Greece won’t go away
• What caused the eurozone crisis?
• How will the euro crisis end?
• Crisis jargon buster

Greece holds crucial talks over EU bailout plan terms

Austerity measures have already hit the living standards of many Greeks

Greek PM Lucas Papademos is set to meet the party leaders of his coalition to try and win support for a proposed 130bn euros ($171bn; £108bn) EU rescue.

Mr Papademos wants their backing for reforms demanded by the IMF and EU as a condition of the bailout.

Eurozone ministers had hoped to meet on Monday to finalise the bailout, Greece’s second, but that meeting has now been cancelled.

The money must be in place by mid-March if Athens is to avoid a debt default.

It is hoped Mr Papademos can reach a deal with party chiefs by Sunday night.

“The moment is very crucial,” said finance minister Evangelos Venizelos on Saturday.

“Everything should be concluded by tomorrow [Sunday] night.”

Athens faces loan repayments to private lenders of 14.4bn euros ($19 billion) on 20 March.

The BBC’s Mark Lowen, in Athens, says Greece cannot afford to lose the bailout package and a lot now rides on these talks.

But, our correspondent says, that with potential elections in April, the parties in Mr Papademos’ coalition are wary about being seen to be associated with the austerity measures being demanded by the EU.

‘Great pressure’

EU officials have expressed frustration with Greece over delays in backing the terms of the latest rescue package, which is being put together by the European Union, the International Monetary Fund and the European Central Bank – the so-called “troika”.

“There is great impatience and great pressure not only from the three institutions that make up the troika but also from eurozone member states,” said Mr Venizelos, after what he described a “very difficult” conference call with his eurozone counterparts.

Reforms that international lenders want to see include a lower minimum wage, the removal of a “13th and 14th month” extra salary which is paid to workers as an annual bonus, and the liberalisation of workplace regulations.

Opponents say that more cuts will worsen living conditions which have already been affected by two years of austerity measures.

Unless Greece promises to implement reforms, the eurozone ministers say Greece will not be able to go ahead with a plan to restructure its privately-held debt.

Greece has prepared a debt plan with private creditors to halve the value of Greek debt and in return receive new, 30 year bonds with an average interest rate of less than 4%.

The restructuring is to help cut Greek debt to 120% of GDP in 2020 from 160% now.

Continue reading the main story

Global Economy

• Why Greece won’t go away
• What caused the eurozone crisis?
• How will the euro crisis end?
• Crisis jargon buster

Euro summit tension over debt crisis plan

UK PM David Cameron gets a warm greeting from German Chancellor Angela Merkel and a handshake from French President Nicolas Sarkozy

Continue reading the main story

Global Economy

• What caused the eurozone crisis?
• How will the euro crisis end?
• Crisis jargon buster
• Europe’s four big dilemmas

The EU’s 27 leaders are discussing how to create jobs and growth amid calls to go beyond enforcing budget discipline.

The EU has more than 23 million unemployed people and there are fears that wide-ranging budget cuts will harm enterprise and training.

The eurozone crisis is dominating the EU summit in Brussels, with debt-laden Greece still at risk of defaulting.

A budget treaty for the eurozone has been drafted. But Poland’s prime minister said it lacked ambition.

Donald Tusk said the new treaty – a “fiscal compact” – was “not entirely ambitious and not brave enough”.

Poland, like other new EU member states in the former communist bloc, is preparing to join the euro and feels it should be fully involved in eurozone meetings.

Continue reading the main story

Analysis

Chris Morris BBC News

The official summit agenda is growth and job creation, and it will be discussed in some detail. Unemployment will be perhaps the big issue in the French presidential election, and there are now more than five million people out of work in Spain – without reversing that trend the eurozone crisis isn’t going to ease.

Leaders will also try to finalise the text of the new fiscal treaty which all EU countries except Britain say they intend to sign.

Then there are the off-agenda items which always make an appearance on occasions like this.

Cometh the EU summit hour, cometh the Greeks… I’m sure they’d like to sit unnoticed in the corner for once, but Greece has developed an unwelcome habit of hogging summit headlines.

• Q&A: EU debt crisis deal
• Where the EU’s 27 stand
• Did Germany cause euro crisis?

Mr Tusk said he wanted to be “participating in the decision-making process, in terms of how this fiscal compact is executed”.

Currently the draft treaty says signatories will hold summits at least twice a year. The attendance of non-euro countries is left to the discretion of the summit president, with the words “will invite when appropriate and at least once a year”.

The head of the Liberal group in the European Parliament, Guy Verhofstadt, echoed Mr Tusk’s criticism, in a BBC interview. He said the treaty “says nothing on jobs, growth and [European] solidarity”.

All member states – apart from the UK – are expected to sign up to the fiscal compact.

The goal is much closer co-ordination of budget policy in the 17-nation eurozone.

As the summit got under way there were fresh fears that Portugal might need a second massive bailout, like Greece.

The yield (interest rate) demanded for Portuguese sovereign bonds rose above 16% – an unsustainable level.

Hard times

A general strike in Belgium reminded EU leaders of public discontent with austerity as they arrived for the summit. It paralysed most of the Brussels transport system and disrupted international trains and flights.

The leaders exchanged views on how best to tackle youth unemployment and support small and medium-sized enterprises (SMEs), many of which complain of excessive administrative costs imposed by Brussels.

Continue reading the main story

“Start Quote

In 2012, much more attention will be given to growth. Why? Because many countries are heading into recession just as austerity measures start to bite”

Gavin Hewitt BBC Europe editor

• Read more from Gavin

In a joint statement on economic growth they noted that cutting budget deficits was “not in itself sufficient”.

“We have to modernise our economies and strengthen our competitiveness to secure sustainable growth,” the statement said.

The EU will help to fund schemes to get young people into work or training in member states with the highest youth unemployment levels.

They pledged to speed up measures to develop the EU single market, including:

• agreement on a common EU patent system by July;
• better targeting of EU funds towards SMEs;
• national legislation to create a functioning single market in services and energy.

The European Commission says 82bn euros (£69bn; $107bn) of EU money is available for countries to spend on projects to boost jobs and growth.

Greek debt mountain

The Commission also says it is confident a deal will be reached within days to reduce Greece’s colossal debt burden. But Greece could still run out of money as early as mid-February.

Private investors are being asked to take a 50% “haircut” (loss) on their Greek bonds in a complex bond swap, with the aim of scaling back Greece’s debt to 120% of gross domestic product by 2020.

A deal is crucial for the EU and International Monetary Fund to grant a long-awaited 130bn-euro second bailout for Greece.

In an interview for the Wall Street Journal on Monday, German Finance Minister Wolfgang Schaeuble said only radical reforms in Greece could trigger the release of the funds.

“Unless Greece implements the necessary decisions and doesn’t just announce them… there’s no amount of money that can solve the problem,” he said.

The atmosphere remained tense at the weekend with a row over a leaked German proposal to put an EU budget commissioner with veto powers in charge of Greek taxes and spending.

Greece rejected the proposal outright, but its EU partners remain alarmed by its failure to meet tough fiscal targets.

At the summit German Chancellor Angela Merkel played down the idea of a special EU commissioner for Greece, calling it “a debate we should not be having”.

The EU is trying to put in place a bigger, more resistant “firewall” to prevent contagion spreading from Greece.

The eurozone plans to launch a 500bn-euro permanent bailout fund – the European Stability Mechanism (ESM) – in July, a year earlier than first planned. It is expected to get the final go-ahead at the summit. The UK will not contribute to it.

Italy alone needs to refinance more than 300bn euros of debt this year and there are many voices urging the European Central Bank to boost the firewall to at least 1tn euros.

Call for EU to control Greek budget

There are continuing concerns that Greece’s economic woes could have a major impact on the euro.

STORY HIGHLIGHTS

• Athens could be forced to adopt a law committing state revenues to service debt first
• Attitudes towards Greece within the EU have continued to worsen
• On Friday, talks broke up without a deal on two elements of the EU-IMF plan

(Financial Times) — The German government wants Greece to cede sovereignty over tax and spending decisions to a eurozone “budget commissioner” to secure a second €130bn bail-out, according to a copy of the proposal obtained by the Financial Times.

In what would amount to an extraordinary extension of European Union control over a member state, the new commissioner would have the power to veto budget decisions taken by the Greek government if they were not in line with targets set by international lenders.

The new administrator, appointed by other eurozone finance ministers, would take responsibility for overseeing “all major blocks of expenditure” by the Greek government.

“Budget consolidation has to be put under a strict steering and control system,” the proposal reads. “Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time.”

Athens would also be forced to adopt a law permanently committing state revenues to debt service “first and foremost”.

The German plan, circulated on Friday afternoon to finance ministry officials from eurozone countries who make up the so-called “euro working group”, underscores the depths of mistrust between Greece and its European Union lenders.

Despite the appointment of economist Lucas Papademos as technocratic prime minister in November, attitudes towards Greece within the EU have continued to worsen. European officials privately say that there has been little movement on public sector reforms under Mr Papademos.

A senior Greek finance ministry official said Athens was unaware of the proposal and could not comment. A German finance ministry spokesman declined to comment.

Greek voters have already expressed anger about EU attempts to assist in implementing reforms. Horst Reichenbach, the German national who heads an EU task force to assist Greece, was depicted in German military garb by leftwing Greek newspapers when he arrived last year.

Under the new German plan, Athens would only be allowed to spend on the normal functioning of its government after servicing its debt. If such a law is adopted, the proposal states, financial markets and other creditors would be reassured that defaults would not occur in the future.

“If a future [bail-out] tranche is not disbursed, Greece cannot threaten its lenders with a default, but will instead have to accept further cuts in primary expenditures as the only possible consequence of any non-disbursement,” the document said.

Even before Germany circulated its proposal, the EU and International Monetary Fund had presented a 10-page list of “prior actions” Athens must implement before the new bail-out is agreed. According to a copy of the document, also obtained by the FT, Greece must cut an additional 150,000 government jobs within three years.

The document, dated Monday, also calls for major budget cuts in defence, healthcare and “entity closures” to bring down this year’s budget deficit. The document said the preliminary estimate for the 2012 deficit target is about 1 per cent of economic output — implying swinging cuts, since previous estimates by lenders put this year’s budget deficit at 7 per cent.

Negotiations between Athens and EU-IMF officials this week have been stormy. On Friday, talks broke up without a deal on two elements of the EU-IMF plan: a request that Greece’s €750 monthly minimum wage be reduced, as well as elimination of the two-month salary bonus granted to private sector workers as an annual bonus.

George Koutroumanis, the labour minister, instead backed a joint counterproposal by employers and trade unions for a three-year wage freeze, arguing wage cuts would plunge Greece into a deeper recession.