Greeks fear ploy to protect arms budget from cuts

Fears are emerging in Greece that eurozone leaders are pushing for defence budgets to be maintained at the same time as they are demanding cuts to public services.

France and Germany have insisted on severe austerity measures in return for the latest eurozone bailout, the latest of which is worth €130bn (£112bn) to Greece. This deal was thrown into chaos last week when George Papandreou, the Greek Prime Minister, called a referendum on the bailout conditions, only to cancel it when he was rebuked by Nicolas Sarkozy and Angela Merkel.

Greeks are furious with the austerity measures, which are hitting jobs and pensions, so were likely to vote against the bailout. Moreover, many are suspicious that France and Germany have privately demanded that Greece's defence budget would not be hit by any cuts. Greece was the biggest buyer of German military exports in the five years to 2010, and is France's third-biggest customer. Yanis Varoufakis, an economics professor at Athens University, said: "When Greek hospitals are running out of bandages, the only bit of the budget not being attacked by the EU and IMF is military expenditure." He added that, with "Greece being such a crucial arms customer, it only takes a phone call to the German government from an armaments manufacturer to ensure Greece's military budget stays intact".

The referendum debacle preceded a fraught G20 summit in Cannes on Thursday and Friday. The UK secured a small victory over Germany, when the country agreed to reduce its trade surplus in order to help address global macroeconomic imbalances.

The G20 summit communiqué stated: "Countries with large current-account surpluses commit to reforms to increase domestic demand, coupled with greater exchange rate flexibility."

Germany, along with China, has run one of the world's largest trade surpluses over the past decade. It has, previously, fiercely resisted calls to do something about its current-account surpluses, arguing that these are a result of the superior competitiveness of its domestic companies. A Downing Street source said: "That they're ... acknowledging the issue is a good start."