Greek PM cancels UN trip to tackle debt crisis

(AP)

The burgeoning Greek debt crisis has forced Prime Minister George Papandreou to cancel his trip to New York for the UN General Assembly, amid rumours he may be forced to pass even more stringent austerity measures in return for a eurozone rescue package.

Eurozone finance ministers, meeting in Poland last week, delayed a decision on whether to extend the final tranche of last year's €110bn bailout loans, which had originally be planned to be paid this month.

Instead, officials from the bloc, the International Monetary Fund and the European Central Bank said the payment decision would be delayed until October, and then depend on the Greek government's progress in introducing spending cuts and tax increases.

Mr Papandreou's office did not give an exact reason for his decision not to attend the UN gathering, at which he was also expected to meet the new IMF leader Christine Lagarde. "The coming week is especially critical for the implementation of the eurozone's decision of 21 July and the initiatives [Greece] must undertake," it said.

Finance Minister Evangelos Venizelos made a thinly veiled attack on fellow European finance chiefs, saying there were "delays and ambivalence" among other eurozone members.

"These may harm the eurozone, but will be catastrophic for us," he added.

The delay will raise fears in Greece that the "troika" – the EU, IMF and ECB – will insist on more belt-tightening before signing off on the rescue deal.

The Greek cabinet met yesterday to discuss how more savings could be made, with officials telling local media that the prospect of large public sector jobs cuts was seriously being considered. Last week the government was forced to announce a new property tax that it hopes would provide about €2bn in revenue this year.

Greece might have to consider retroactively – and wi th immediate effect – rescinding all public-sector hiring that took place in 2010 and 2011, said Greek officials familiar with the discussions, according to a report in The Wall Street Journal.

The second package could also depend on Greece convincing the troika that the latest plans are being approved quickly enough. Mr Venizelos is due to hold talks with international inspectors today.

The latest measures are being debated in the parliaments of eurozone countries and are meeting stern opposition. There are concerns, especially in Germany and France, that the Greek bailout could set a precedent for other struggling European economies. The debates also come at a time when banks, especially in France, are seeing their share prices fall because of their exposure to Greek debt.